Measuring Interest Rate Risk using Factor Duration – The

Prelegent(ci)

Manfred Jäger-Ambrozewicz

Afiliacja

Berlin University of Applied Science

Termin

20 grudnia 2017 14:15

Pokój

p. 5820

Tytuł w języku angielskim

Un-) Importance of the No-Arbitrage Conditio

Seminarium

Seminarium "Metody ilościowe w finansach"

---

The duration of Macaulay is a very intuitive measure of interest rate risk of fixed income securities but of limited use, as it is consistent with parallel shifts of the term structure only. We consider duration vectors that are consistent with realistic dynamics of the term structure. Duration vectors based on dynamic Nelson-Siegel representations, Principal Components Analysis and ad hoc empirical factors are introduced and compared. These approaches are consistent with realistic term structure dynamics and rather intuitive but in general inconsistent with the no-arbitrage condition and consequently also inconsistent with asset pricing. Fortunately duration vectors appropriately defined fit naturally with affine term structure models. Thus duration vectors based on affine term structure models can naturally be made consistent with no-arbitrage.

---