Interest-Rate Risk and Management of Fixed-Income Portfolios: A Talk by Prof. Elias Shiu of the University of Iowa

Interest-Rate Risk and Management of Fixed-Income Portfolios

Professor Elias Shiu, University of Iowa

Sponsored by the Morton L. Topfer Chair Lecture Series and the Department of Finance and Risk Engineering

Abstract
A major risk faced by managers of fixed-income portfolios is interest-rate fluctuations. A method for managing interest-rate risk was proposed by the actuary F.M. Redington. His paper “Review of the Principles of Life-Office Valuations” is probably the most cited actuarial paper in the finance literature. In this paper, Redington suggested the principle that there should be equal and parallel treatment in the valuation of assets and liabilities. His theory of immunization for insulating a portfolio against interest-rate fluctuations is a consequence of this principle. This talk will generalize Redington’s theory and explain the problem of interest-rate risk management in the context of stochastic ordering.

About the Speaker
Elias S. W. Shiu is Principal Financial Group Foundation Professor of Actuarial Science at the University of Iowa. He received a Ph.D. in mathematics from the California Institute of Technology in 1975. From 1976 to 1991, he was a professor of actuarial science at the University of Manitoba and a consultant for the Great-West Life Assurance Company, Winnipeg, Canada. He is an Editor for the international journal Insurance: Mathematics and Economics and a Co-Editor for the North American Actuarial Journal. His research papers have won four Halmstad Prizes.