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Article
Publication date: 27 February 2009

Carlos E. Ortiz, Charles A. Stone and Anne Zissu

The purpose of this paper is to present an innovative model that helps create a portfolio of m‐fixed‐income securities, each with the optimal weight, in order for the…

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Abstract

Purpose

The purpose of this paper is to present an innovative model that helps create a portfolio of m‐fixed‐income securities, each with the optimal weight, in order for the portfolio to be δ‐ and γ‐hedged against small changes in interest rates. Re‐balancing a portfolio on a periodic basis is necessary, but also very costly. The model presented in this paper minimizes the necessity of rebalancing a portfolio, by choosing the optimal δ‐hedge ratios when constructing the initial portfolio to be hedged against interest rate risk.

Design/methodology/approach

In this paper, a general model is developed to obtain the optimal δ hedge for a portfolio of m‐fixed‐income‐securities (a1, a2, a3,…; ai, … , am), each, a function of the market interest rate y, such that when the value of each of the individual securities changes up or down, because of changes in market rates y, the total value of the portfolio is unchanged. The delta hedge is developed under the constraint of a zero‐gamma, in order to avoid costs related to the re‐balancing of such portfolio.

Findings

An innovative model is developed that helps create a portfolio of m‐fixed‐income securities, each with the optimal weight, in order for the portfolio to be δ‐ and γ‐hedged against small changes in interest rates.

Practical implications

The model minimizes the necessity of rebalancing a portfolio, by choosing the optimal δ‐hedge ratios when constructing the initial portfolio to be hedged against interest rate risk.

Originality/value

An innovative model has been developed that helps create a portfolio of m‐fixed‐income securities, each with the optimal weight, in order for the portfolio to be delta‐ and gamma‐hedged against small changes in interest rates.

Details

The Journal of Risk Finance, vol. 10 no. 2
Type: Research Article
ISSN: 1526-5943

Keywords

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Article
Publication date: 15 August 2008

Carlos E. Ortiz, Charles A. Stone and Anne Zissu

Interest only strips are created by stripping the interest portion of cash flows generated in mortgage‐backed securities or simply by servicing portfolios of mortgages. A…

Abstract

Purpose

Interest only strips are created by stripping the interest portion of cash flows generated in mortgage‐backed securities or simply by servicing portfolios of mortgages. A number of financial institutions have significant amounts of mortgage‐servicing rights (MSR) which need to be delta (dynamic) hedged. Because MSR have a positive duration when prepayment effect is stronger than discount effect, it is possible to delta hedge a portfolio of MSR with other fixed income securities such that the value of the portfolio is not affected by increases or decreases in market rates. The purpose of this paper is to address this issue.

Design/methodology/approach

The paper develops the delta‐hedge‐ratio of MSR within a dynamic approach, using three different securities. To lower the cost of the delta hedge, the authors compare three hedge ratios dynamically, in order to obtain the portfolio that needs the least delta hedge.

Findings

The model enables the reduction of the amount of portfolio rebalancing and therefore reduces the cost of MSR portfolio hedging.

Practical implications

The paper develops the gamma‐hedge‐ratio function for each of the three securities. The lowest gamma corresponds to the hedged portfolio that needs the least re‐balancing.

Originality/value

This paper is innovative with the introduction of a delta‐hedge‐ratio function of interest and prepayment rates.

Details

The Journal of Risk Finance, vol. 9 no. 4
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 17 August 2010

Anne Zissu, Carlos Ortiz and Charles Stone

The aim of this paper is to develop the optimal delta hedge for a portfolio of mortgage servicing rights (MSR) under the constraint of a zero‐gamma in order to avoid costs…

Abstract

Purpose

The aim of this paper is to develop the optimal delta hedge for a portfolio of mortgage servicing rights (MSR) under the constraint of a zero‐gamma in order to avoid costs related to the rebalancing of such portfolio.

Design/methodology/approach

The paper develops the optimal delta hedge ratio with gamma and vega constraints for an MSR portfolio by finding the different combinations of coupon/maturity bonds (c, n) that satisfy the constraints under different yields (y). Rather than search for the available fixed income securities and see by trial and error which one should be added to the portfolio of MSR such that when market rates go up and down, the value of the portfolio is not affected, the model finds the optimal pairs of coupon/maturity bonds over a range of yields, that satisfy the constraints. It develops the conditions for a delta‐hedged portfolio of bonds and MSR under an investor's or a portfolio manager's value constraint K. The share α of the MSR's value and the share β of the bond's value had to be such that a zero‐delta portfolio that satisfies the constant value of the portfolio can be created. The paper “optimized” α by requiring simultaneously that α′=0 and also that α″=0, for a fixed y given by the market that will guarantee that the function α satisfies simultaneously the two conditions: α′=0 and α″=0. These two conditions will yield equations in the parameters of c and n. The “optimization” problem for arbitrary y's is solved, and n and c for the appropriate bond are found to be added to the MSR portfolio.

Findings

Maple software is used to simulate a portfolio of MSR that is delta hedged with bonds, whose appropriate coupon and maturity are found with the model developed under the constraint of a zero‐gamma, in order to avoid costs related to the rebalancing of such portfolio. The optimal hedge ratio with gamma and vega constraints for an MSR portfolio is developed by finding the different combinations of coupon/maturity bonds that satisfy the constraints under different yields (the “triples”).

Practical implications

The optimal triples (c, n, y) are obtained in order to optimize α and simultaneously α′=0 and α″=0. For example, for a yield of 16.1 percent, a bank with a portfolio of MSR based on the data used, should add to it, bonds with a 6.33 percent coupon that matures in 7.55 years.

Originality/value

This paper is the first to the authors' knowledge to derive the different triples (yield, coupon, maturity) of bonds that when combined with MSR create a portfolio that is dynamically hedged against interest rate risk and prepayment risk, and therefore eliminates the need of periodic rebalancing of a portfolio of MSR, which is costly.

Details

The Journal of Risk Finance, vol. 11 no. 4
Type: Research Article
ISSN: 1526-5943

Keywords

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Article
Publication date: 9 August 2013

Carlos E. Ortiz, Charles A. Stone and Anne Zissu

One of the main risks to investors in securitized reverse mortgages is that the value of the reverse mortgage exceeds that of the property. The purpose of this paper is to…

Abstract

Purpose

One of the main risks to investors in securitized reverse mortgages is that the value of the reverse mortgage exceeds that of the property. The purpose of this paper is to develop a model that determines paths of constant cross‐over points across any pairs of interest and inflation rate.

Design/methodology/approach

To study the behavior of hyper‐surfaces, multivariate calculus was used.

Findings

Knowing that the value of a reverse mortgage increases above that of the property value once it goes beyond the cross‐over point t*, it is possible to construct a pool of reverse mortgages, such that for any pairs of inflation rate and interest rate (x, r), these reverse mortgages move along lines of constant cross‐over points t*.

Originality/value

The paper develops a model that determines paths of constant cross‐over points across any pairs of interest and inflation rate, which can be used when structuring pools of reverse mortgage‐backed securities, to credit‐enhance investors.

Details

The Journal of Risk Finance, vol. 14 no. 4
Type: Research Article
ISSN: 1526-5943

Keywords

Content available
Article
Publication date: 13 November 2009

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901

Abstract

Details

The Electronic Library, vol. 27 no. 6
Type: Research Article
ISSN: 0264-0473

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Book part
Publication date: 22 June 2001

William H. Mobley and Morgan W. McCall

Abstract

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Advances in Global Leadership
Type: Book
ISBN: 978-0-76230-723-4

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Article
Publication date: 20 November 2007

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286

Abstract

Details

The Electronic Library, vol. 25 no. 6
Type: Research Article
ISSN: 0264-0473

Content available
Article
Publication date: 14 November 2008

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602

Abstract

Details

The Electronic Library, vol. 26 no. 6
Type: Research Article
ISSN: 0264-0473

Abstract

Details

Management Decision, vol. 56 no. 6
Type: Research Article
ISSN: 0025-1747

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Article
Publication date: 10 January 2019

José-Luis Rodríguez-Sánchez, Marta Ortiz-de-Urbina-Criado and Eva-María Mora-Valentín

The purpose of this paper is to propose a human resource management model for the integration stage of mergers and acquisitions (M/A) process with four key factors…

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3126

Abstract

Purpose

The purpose of this paper is to propose a human resource management model for the integration stage of mergers and acquisitions (M/A) process with four key factors: leadership and integration team; change and restructuring process; human resources (HR) resistance; valuable HR retention.

Design/methodology/approach

The authors analyze a case study of a multinational company that operates in the mechanical engineering sector.

Findings

The results show the special importance of human resource management in the success of the merger and acquisition process. And, the main actions implemented in HR contributing to the success of this process are identified.

Research limitations/implications

Subsequent investigations could conduct similar analyses for the planning and implementation stages of the merger and acquisition process, with the objective of presenting a complete HR management model in merger and acquisition processes.

Practical implications

The case study allows researchers to learn from professionals and business leaders while also offering a theoretical model that can help managers make decisions and improve the management of these processes.

Originality/value

The main contribution of this study has been to observe how HR are managed in the integration stage of M/A.

Details

International Journal of Manpower, vol. 40 no. 4
Type: Research Article
ISSN: 0143-7720

Keywords

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