Option-based risk management of a bond portfolio under regime switching interest rates |
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| Authors: | Fabio Antonelli Alessandro Ramponi Sergio Scarlatti |
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| Institution: | 1. Department of Mathematics, University of L’Aquila, L’Aquila, Italy
2. Department of Economics, Financial Studies and Quantitative Methods, University of Roma, Tor Vergata, Italy
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| Abstract: | In the present paper, we assume an economy with regime switching short rates and show how the Value at Risk of a financial position on zero-coupon bonds, hedged by buying protective put options under budget constraints, can be minimized by selecting optimal (regime-dependent) strike prices. |
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