Portfolio Insurance and Bond Management in a Vasicek's Term
Structure of Interest Rates
José Alberto Soares da Fonseca
Portfolio Insurance is a technique which aims to ensure a minimum value to a portfolio through the replication of a put option. The use of this technique to bond management has not been object of significant interest by the related literature due to the difficulty in obtaining closed form solutions for bond option pricing. In this research we demonstrate that portfolio insurance technique can be used as a bond management strategy, using a bond option pricing formula based on Vasicek model for the term structure of interest rates.