Immunization of bond portfolios: A new general framework

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Authors: Alberto Bueno-Guerrero, Manuel Moreno, Javier F. Navas
Cited by: 0
References: 59

Abstract

We present a new general setting for the classical immunization problem under which we recover and generalize many of the results in the literature related to immunization of bond portfolios. We also propose a new duration vector adapted to our framework that allows us to obtain immunized portfolios by duration matching. We introduce the concept of second-best portfolio that is the portfolio that produces the minimum loss in the worst-case scenario. We obtain explicit expressions for this class of portfolios when short positions are allowed or forbidden. We also show that, when immunization cannot be achieved, the second-best portfolio is the closest to the duration matching situation. Finally, we carry out a numerical illustration of our theoretical results, showing the effectiveness of the duration measures and the second-best portfolios.

Fields of Study & Subjects

Risk and Portfolio Optimization Stochastic processes and financial applications Financial Analysis and Corporate Governance

Publication details

Journal / source
Quantitative Finance and Economics
Volume
10
Issue
1
Pages
130–161
Publication date
1 January 2026
Language
EN