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A theory of bond portfolios

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Author Info
Ivar Ekeland
Erik Taflin
Abstract

We introduce a bond portfolio management theory based on foundations similar to those of stock portfolio management. A general continuous-time zero-coupon market is considered. The problem of optimal portfolios of zero-coupon bonds is solved for general utility functions, under a condition of no-arbitrage in the zero-coupon market. A mutual fund theorem is proved, in the case of deterministic volatilities. Explicit expressions are given for the optimal solutions for several utility functions.

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File URL: http://arxiv.org/abs/math/0301278
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Paper provided by arXiv.org in its series Quantitative Finance Papers with number math/0301278.

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Date of creation: Jan 2003
Date of revision: May 2005
Publication status: Published in Annals of Applied Probability 2005, Vol. 15, No. 2, 1260-1305
Handle: RePEc:arx:papers:math/0301278

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Heath, David & Jarrow, Robert & Morton, Andrew, 1992. "Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation," Econometrica, Econometric Society, vol. 60(1), pages 77-105, January. [Downloadable!] (restricted)
  2. Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December. [Downloadable!] (restricted)
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  3. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-57, August. [Downloadable!] (restricted)
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  1. Erik Taflin, 2009. "Generalized Integrands and Bond Portfolios: Pitfalls and Counter Examples," Quantitative Finance Papers 0909.2341, arXiv.org. [Downloadable!]
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This page was last updated on 2009-12-19.

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