Sensitivity with Respect to the Yield Curve: Duration in a Stochastic Setting [chapter]

Paul C. Kettler, Frank Proske, Mark Rubtsov
2014 Inspired by Finance  
Bond duration in its basic deterministic form is a concept well understood. Its meaning in the context of a yield curve on a stochastic path is less well developed. We extend the basic idea to a stochastic setting. More precisely, we introduce the concept of stochastic duration as a Malliavin derivative in the direction of a stochastic yield surface modeled by the Musiela equation. Further, using this concept we also propose a mathematical framework for the construction of immunization
more » ... munization strategies (or delta hedges) of portfolios of interest-ratesensitive securities with respect to the fluctuation of the whole yield surface.
doi:10.1007/978-3-319-02069-3_17 fatcat:6z4wlwd4d5axhhsldxeb5qvggy