Optimal interest rate derivatives portfolio with constrained greeks-a stochastic control approach

Authors:
Konstantinos Kiriakopoulos;George Kaimakamis
Affiliations:
Capital Markets, Proton Bank, Athens, Greece;Hellenic Army Academy, Athens, Greece
Venue:
SMO'09 Proceedings of the 9th WSEAS international conference on Simulation, modelling and optimization
Year:
2009

Citing 4
Cited 0

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Abstract

This paper presents a method of managing interest rate portfolios with constrained sensitivities.The problem is formulated as a stochastic control portfolio optimization problem. The method is general enough so that it can applied equally well to trading and to risk managemnet level in a systematic way.The constraints imposed on the portfolio sensitivities (greeks) must be met at all times so that optimal positions do not contribute to unwanted risks. The method is dynamic by its nature and it can be used in a bottom up way so that additional VAR or CVAR constraints can be imposed as well.