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Enhanced Immunization for Financial Institutions Using the Duration Vector

Enhanced Immunization for Financial Institutions Using the Duration Vector PDF Author: Donald R. Chambers
Publisher:
ISBN:
Category : Asset-liability management
Languages : en
Pages : 46

Book Description
The purpose of this paper is to demonstrate the use of a duration vector developed by Chambers and others (1, 2, 3, 4) to reduce the interest-rate-risk exposure of a financial institution. Three balance sheets are constructed using the duration-vector. Each balance sheet is designed to eliminate the sensitivity of the financial institution's equity to interest-rate changes that affect the financial institutions' assets and liabilities. The three balance sheets are analyzed with interest-rate data from 1971-1983. The results indicate that the duration-vector is able to eliminate virtually all interest-rate risk.