Immunization is a widely used tool in bond portfolio management, capable of hedging interest rate risk. Its goal, the construction of a portfolio whose value is not negatively affected by a change in the term structure, can contradict no-arbitrage condition. This paper investigates the existence and functional form of shocks that do not lead to arbitrage opportunities.
Bond immunization and arbitrage in the semi-deterministic setting
MORETTO, ENRICO
2007-01-01
Abstract
Immunization is a widely used tool in bond portfolio management, capable of hedging interest rate risk. Its goal, the construction of a portfolio whose value is not negatively affected by a change in the term structure, can contradict no-arbitrage condition. This paper investigates the existence and functional form of shocks that do not lead to arbitrage opportunities.
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