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Dynamic Optimality of Yield Curve Strategies (Published in "International Review of Finance", Vol.4, 49-78, 2003. )

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Author Info

  • Takao Kobayashi

    (Faculty of Economics, University of Tokyo)

  • Akihiko Takahashi

    (Faculty of Economics, University of Tokyo)

  • Norio Tokioka

    (Faculty of Economics, Seikei University.)

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    Abstract

    This paper formulates and analyzes a dynamic optimization problem of bond portfolios within Markovian Heath-Jarrow-Morton term structure models. In particular, we investigate optimal yield curve strategies analytically and numerically, and provide theoretical justification for a typical strategy which is recommended in practice for an expected change in the shape of the yield curve. In the numerical analysis, we utilize a new technique based on the asymptotic expansion approach in order to increase efficiency in computation.

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    File URL: http://www.carf.e.u-tokyo.ac.jp/pdf/workingpaper/fseries/8.pdf
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    Bibliographic Info

    Paper provided by Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo in its series CARF F-Series with number CARF-F-013.

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    Length: 53 pages
    Date of creation: Sep 2004
    Date of revision:
    Handle: RePEc:cfi:fseres:cf013

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