Published Articles

Publication |
Citation |
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A
Risk Minimizing Strategy for Portfolio Immunization |
Journal of Finance (December 1984), H. Gifford Fong, Consider a fixed-income portfolio whose duration is equal to the length of a given investment horizon. It is shown that there is solely a lower limit on the change in the end horizon value of the portfolio resulting from any given change in the structure of interest rates. This lower limit is the product of two terms, of which one is a function of the interest rate change and the other depends only on the structure of the portfolio. Consequently, this second term provides a measure of immunization risk. If this measure is minimized, the exposure of the portfolio to any interest rate change is the lowest. |

The
Tradeoff Between Return and Risk in Immunized Portfolios |
Financial Analyst Journal (September/October, 1983), H. Gifford Fong and Oldrich Vasicek, The classical objective of immunization has been risk protection, with little consideration of possible returns. Leibowitz and Weinberger proposed a scheme called Contingent Immunization, which provides a degree of flexibility in pursuing active strategies while ensuring a certain minimum return in the case of parallel rate shifts. With this approach, immunization serves as a fall-back strategy if the actively managed portfolio does not grow at a certain rate. This article explores the risk-return tradeoff for immunized portfolios using a very different approach. The strategy proposed here maintains the duration of the portfolio equal to the horizon length (or in the multiple-liability case, keeps the generalized immunization conditions satisfied). Thus the portfolio always remains fully immunized in the classical sense. However, instead of attempting to minimize the portfolio's immunization risk, this strategy aims for an optimal tradeoff between risk and return. The immunization risk measures can be relaxed if the compensation in terms of expected return warrants it. The strategy also maximizes a lower bound on the portfolio's return. The lower bound is defined as a confidence interval on the realized return for a given probability level. |

An
Asset Allocation Framework |
The Journal of Portfolio Management (Winter, 1980), H. Gifford Fong, The purpose of an asset allocation system is to provide assistance in blending the concentration of each asset class to achieve a return between the lowest and highest return alternative at minimum risk. This trade off between return and risk is the essence of the asset allocation problem. Further extensions and refinements can also be considered. For example, minimum or maximum concentration of asset types or a minimum portfolio yield may be desired. By imposing these kinds of constraints to the problem, a more customized analysis is achieved. Realistically, we cannot hope to achieve total risk reduction because of the paucity of negative covariance asset types. Risk minimization, however, is possible and that is the objective of the asset allocation framework. |

A
Multi-Dimensional Framework for Risk Analysis |
Financial Analysis Journal (July/August 1997), H. Gifford Fong and Oldrich Vasicek |

Taxable Asset Allocation with Varying Market Risk Premiums |
The Journal of Portfolio Management (Fall 1995), James P. Meehan, Daihyun Yoo and H. Gifford Fong |