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GEMF

Grupo de Estudos Monetários e Financeiros

Estudos do GEMF, N.º 08 de 1998

  

Portfolio Insurance and Bond Management in a Vasicek's Term

Structure of Interest Rates


José Alberto Soares da Fonseca
Faculdade de Economia, Universidade de Coimbra

Abstract:
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.

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