Sensitivity Analysis for a Bond Portfolio Management Model

Marida Bertocchi and Vittorio Moriggia
Department of Mathematics, University of Bergamo
marida@unibg.it

Jitka Dupacova
Department of Statistics, Charles Univerity, Prague
Dupacova@karlin.mff.cuni.cz

Abstract

Management of portfolio of fixed income securities is formulated as a multiperiod scenario based on stochastic program with random recourse. Stochasticity is introduced by modelling the evolution in interest rates through scenarios based on a binomial lattice obtained by Black-Derman-Toy approach. The main aim of the contribution is the sensitivity analysis of the solution of the stochastic program with respect to scenario choice. Application to the Italian market is given.

Keywords: Stochastic programming, bond portfolio management, sensitivity analysis.