9th WSEAS International Conference on Simulation, Modelling and Optimization, Budapest, Hungary, 3 - 05 September 2009, pp.217-219
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 management 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.