Book Image

Introduction to R for Quantitative Finance

By : Gergely Daróczi, Michael Puhle, Edina Berlinger (EURO), Daniel Daniel Havran, Kata Váradi, Agnes Vidovics-Dancs, Agnes Vidovics Dancs, Michael Phule, Zsolt Tulassay, Peter Csoka, Marton Michaletzky, Edina Berlinger (EURO), Varadi Kata
Book Image

Introduction to R for Quantitative Finance

By: Gergely Daróczi, Michael Puhle, Edina Berlinger (EURO), Daniel Daniel Havran, Kata Váradi, Agnes Vidovics-Dancs, Agnes Vidovics Dancs, Michael Phule, Zsolt Tulassay, Peter Csoka, Marton Michaletzky, Edina Berlinger (EURO), Varadi Kata

Overview of this book

Introduction to R for Quantitative Finance will show you how to solve real-world quantitative fi nance problems using the statistical computing language R. The book covers diverse topics ranging from time series analysis to fi nancial networks. Each chapter briefl y presents the theory behind specific concepts and deals with solving a diverse range of problems using R with the help of practical examples.This book will be your guide on how to use and master R in order to solve quantitative finance problems. This book covers the essentials of quantitative finance, taking you through a number of clear and practical examples in R that will not only help you to understand the theory, but how to effectively deal with your own real-life problems.Starting with time series analysis, you will also learn how to optimize portfolios and how asset pricing models work. The book then covers fixed income securities and derivatives such as credit risk management.
Table of Contents (17 chapters)
Introduction to R for Quantitative Finance
Credits
About the Authors
About the Reviewers
www.PacktPub.com
Preface
Index

Immunization of fixed income portfolios


A portfolio is immunized when it is unaffected by interest rate change. Duration gives a good measure of interest rate sensitivity; therefore, it is generally used to immunize portfolios. As using duration assumes a flat yield curve and a little parallel shift of the yield curve, the immunized portfolio is constrained by these assumptions, and being unaffected will mean that the value of the portfolio changes only slightly as yields change.

There are two different kinds of immunization strategies: net worth immunization and target date immunization.

Net worth immunization

Fixed income portfolio managers often have a view on the way the yield curve will change in the future. Let us assume that a portfolio manager expects rates to increase in the near future. As this would have an unfavorable effect on the portfolio, the portfolio manager could decide to set the duration of the portfolio to zero by entering into forward agreements or interest rate swaps...