Exchange-Traded Fixed-Income Derivatives in Asset Management and Asset-Liability Management

In this paper, we examine how standard exchange-traded fixed-income derivatives (futures and options on futures contracts) can be made part of sound risk and asset management in such a way as to improve the risk and return performance characteristics of managed portfolios.

Author(s) :

Felix Goltz

Senior Research Engineer at the EDHEC Risk and Asset Management Research Centre

Lionel Martellini

Professor of Finance and Scientific Director of the EDHEC Risk and Asset Management Research Centre

Volker Ziemann

Research Engineer at the EDHEC Risk and Asset Management Research Centre

Our results show that the non-linear character of the returns on protective option strategies offers appealing risk reduction properties in pure asset management. Consequently, such strategies should optimally receive a significant allocation, especially when investors are concerned with minimising extreme risks. In asset-liability management, we also show that fixed-income derivatives in general, and recently launched long-term futures contracts in particular, offer significant shortfall risk reduction benefits. These results have potentially significant implications in the context of an increased focus on matching liability portfolios.
Pdf
Exchange-Traded Fixed-Income Derivatives in Asset Management and Asset-Liability...
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Type : Working paper
Date : le 05/03/2007
Extra information : Pour plus d'informations, nous vous prions de vous adresser à Joanne Finlay, Direction de la recherche de l'EDHEC [ joanne.finlay@edhec.edu] Les opinions exprimées sont celles de l'auteur et n'engagent pas la responsabilité de l'EDHEC.
Research Cluster : Finance

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