1Testing the Optimality of Immunization Strategies With Transaction Costs

In this paper, a dynamic fixed-income portfolio selection model is developed under different stochastic and non stochastic term structure regimes. This model allows the introduction of transaction costs and shows that, in this context, the maximin strategy against interest rate risk may not be the immunization strategy but that it may consist of building up a portfolio with an initial duration less than the investor planning period. The optimality of the solutions provided by the model are tested using simulation techniques