The analysis of duration and immunization strategy under the HJM term structure framework

Abstract

Using the duration measures defined by Bierwag (1996), we derive the formulae of duration far zero-coupon bonds, coupon bonds and bond portfolios under the Heath, Jarrow and Morton (1990) (HJM) term structure framework. The advantage in using Bierwag's duration measure is that it provides a one-to-one correspondence with the returns on interest rate sensitive securities. Hence, this duration measure can make the performance of risk management on interest rates better We also investigate the differences of duration for coupon bonds between our formula and the conventional Macaulay's measure. Finally, we show that the performance of dynamic immunization strategy is much better than that of static immunization strategy.

Citation

Chang, C.-C. and Ho, R.-J. (2002), "The analysis of duration and immunization strategy under the HJM term structure framework", Research in Finance (Research in Finance, Vol. 19), Emerald Group Publishing Limited, Leeds, pp. 241-268. https://doi.org/10.1016/S0196-3821(02)19011-3