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Dynamic Allocation of Treasury and Corporate Bond Portfolios

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  • Roger Walder

    (University of Lausanne, FAME and Banque Cantonale Vaudoise)

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    Abstract

    In this paper, we solve the intertemporal investment problem of an investor holding a portfolio of default-free and defaultable bonds. Default-risk is modeled in an intensity based framework with state variables following an affine diffusion. The structure of the optimal portfolio over time is investigated and compared to the static mean-variance portfolio. Furthermore, we describe the impact of time varying market prices of risk and interdependencies between interest rates and credit risk on the optimal portfolio structure.

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    File URL: http://www.swissfinanceinstitute.ch/rp61.pdf
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    Bibliographic Info

    Paper provided by International Center for Financial Asset Management and Engineering in its series FAME Research Paper Series with number rp64.

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    Date of creation: Dec 2002
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    Handle: RePEc:fam:rpseri:rp64

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    Related research

    Keywords: Dynamic Asset Allocation; Portfolio Management; Credit Risk;

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