Risk management with duration analysis

Iraj J. Fooladi (Douglas C. Mackay Chair in Finance at the School of Business Administration, Dalhousie University, 6152 Coburg Road, Halifax, Nova Scotia, Canada)
Gordon S. Roberts (CIBC Professor of Financial Services, Schulich School of Business, York University, 4700 Keele Street, Toronto, Ontario, Canada)

Managerial Finance

ISSN: 0307-4358

Publication date: 1 March 2000

Abstract

Outlines the development of duration as a risk management tool for fixed income securities, shows how it is calculated and gives examples to illustrate its use in assessing risk exposure and immunizing bond portfolio returns against interest rate risk. Cites research confirming its effectiveness and goes on to discuss the application of duration gaps to balance sheet hedging (macrohedging) by financial institutions and the New Zealand government. Considers some complications of duration analysis due to convexity, stochastic process risk and default risk.

Keywords

Citation

Fooladi, I.J. and Roberts, G.S. (2000), "Risk management with duration analysis", Managerial Finance, Vol. 26 No. 3, pp. 18-28. https://doi.org/10.1108/03074350010766558

Publisher

:

MCB UP Ltd

Copyright © 2000, MCB UP Limited

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