Duration models and IRR management: A question of dimensions?

摘要

This paper compares the immunization performance of alternative single and multiple factor duration models, using Spanish government bond data, over 1, 2 and 3-year horizons. The aim is to assess whether the success of duration-matching strategies is primarily attributable to the particular model chosen or to the number of risk factors considered. Empirical tests show that: (ⅰ) traditional immunization is easily bettered by more realistic strategies; (ⅱ) the number of risk factors considered has a greater influence on the result than the particular model chosen; and (ⅲ) three-factor immunization strategies offer the highest immunization benchmarks.