engleski

The portfolio management theory and applications to the Croatian financial market

In the paper it is considered the typical interest rate sensitive - IRS portfolio characterized by its asset and liability streams. These streams are consist, in general, of random payments that are function of the interest rate. The problem is how to determine the allocation of assets to make them, as far as possible, equally vulnerable as the liabilities to the effects of fluctuations in the market rate of interest. On the basis of the result of semi-deterministic immunization theory, i.e. on the basis of the Downside Risk Theorem, we build the schema (linear programming problem), which can be used to select and manage an investment portfolio (a bonds portfolio, for example) dedicated to cover a fixed liability stream. We believe that the procedures that can be built on the basis of semi-deterministic immunization theory, present the best combination of compilance with the strict requirements of theoretical models and practical applicability. The expounded procedure can be used in numerous examples of formation of the interest rate sensitive portfolio. In this paper it is applied on the Croatian financial market, where it is shown how to form a bond portfolio of a pension fund taking into account legal limitations referring to pension funds investments. In the concrete example it is shown how to ensure the payment of anticipated receivables during 10 years by investing into a bond portfolio with the yield of 1.43 million EUR. Naturally, given changes on the market, a new portfolio can be formed by the same procedure at any time. Given development of the Croatian financial market, i.e. establishment and multiplication of investment funds, especially pension funds, creation and application of such methods will become increasingly valuable.

interest rate sensitive portfolio; semi-deterministic immunisation theory; Croatian financial market; pension funds

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