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2006 | OriginalPaper | Chapter

13. Duration analysis and its applications

Authors : Iraj J. Fooladi, Gady Jacoby, Gordon S. Roberts

Published in: Encyclopedia of Finance

Publisher: Springer US

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Abstract

We discuss duration and its development, placing particular emphasis on various applications. The survey begins by introducing duration and showing how traders and portfolio managers use this measure in speculative and hedging strategies. We then turn to convexity, a complication arising from relaxing the linearity assumption in duration. Next, we present immunization — a hedging strategy based on duration. The article goes on to examine stochastic process risk and duration extensions, which address it. We then examine the track record of duration and how the measure applies to financial futures. The discussion then turns to macrohedging the entire balance sheet of a financial institution. We develop a theoretical framework for duration gaps and apply it, in turn, to banks, life insurance companies, and defined benefit pension plans.

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Metadata
Title
Duration analysis and its applications
Authors
Iraj J. Fooladi
Gady Jacoby
Gordon S. Roberts
Copyright Year
2006
Publisher
Springer US
Book
Encyclopedia of Finance

Print ISBN: 978-0-387-26284-0

Electronic ISBN: 978-0-387-26336-6

Copyright Year: 2006

DOI
https://doi.org/10.1007/978-0-387-26336-6_39