Improving Interest Rate Risk Hedging Strategies through Regularization

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dc.coverageDOI: 10.1080/0015198X.2022.2095193
dc.creatorMantilla-Garcia, Daniel
dc.creatorMartellini, Lionel
dc.creatorMilhau, Vincent
dc.creatorRamirez-Garrido, Hector Enrique
dc.date2022
dc.date.accessioned05-01-2026 18:23
dc.date.available05-01-2026 18:23
dc.description<p>The effectiveness of duration and convexity hedging strategies deteriorates in the presence of non-parallel shifts of the yield curve. In the absence of appropriate constraints, the extension of these strategies accounting for changes in the shape of the yield curve generates unstable weights and extreme leverage, leading to poor out-of-sample hedging performance. To address this conundrum, we recast the bond portfolio immunization problem as a multifactor optimization program with leverage constraints and weight regularization. These regularized immunization strategies offer a robust improvement in hedging performance and are particularly well-suited to secure future cash flow needs such as pension liabilities.</p>eng
dc.identifierhttps://investigadores.uandes.cl/en/publications/f8335908-7f90-45a5-aae6-e2cbc062d6e9
dc.languageeng
dc.rightsinfo:eu-repo/semantics/openAccess
dc.sourcevol.78 (2022) nr.4 p.18-36
dc.subjectinterest rate hedging
dc.subjectpension liability-hedging
dc.subjectrobust bond portfolio immunization
dc.titleImproving Interest Rate Risk Hedging Strategies through Regularizationeng
dc.typeConference articleeng
dc.typeArtículo de la conferenciaspa
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