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Portfolio Management for a Random Field of Bond Returns

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Author Info
Vladislav Kargin (Cornerstone Research)

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Abstract

A new method of bond portfolio optimization is described. The method is based on stochastic string models of bond returns. It is shown how to approximate the bond return correlation function with Padé approximations and how to compute the optimal portfolio allocation using Wiener-Hopf factorization. The technique is illustrated with an example of the Treasury bond portfolio.

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File URL: http://129.3.20.41/eps/fin/papers/0310/0310007.pdf
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Publisher Info
Paper provided by EconWPA in its series Finance with number 0310007.

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Length: 13 pages
Date of creation: 07 Oct 2003
Date of revision:
Handle: RePEc:wpa:wuwpfi:0310007

Note: Type of Document - PDF; prepared on IBM PC ; pages: 13 ; figures: included
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Web page: http://129.3.20.41

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Related research
Keywords: bond portfolio management; stochastic string; Toeplitz operators; Padé approximations; Wiener-Hopf factorization.;

Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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  1. Golub, Bennett & Holmer, Martin & McKendall, Raymond & Pohlman, Lawrence & Zenios, Stavros A., 1995. "A stochastic programming model for money management," European Journal of Operational Research, Elsevier, vol. 85(2), pages 282-296, September. [Downloadable!] (restricted)
  2. Goldstein, Robert S, 2000. "The Term Structure of Interest Rates as a Random Field," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 13(2), pages 365-84.
  3. Zenios, Stavros A. & Holmer, Martin R. & McKendall, Raymond & Vassiadou-Zeniou, Christiana, 1998. "Dynamic models for fixed-income portfolio management under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 22(10), pages 1517-1541, August. [Downloadable!] (restricted)
  4. Santa-Clara, Pedro & Sornette, Didier, 2001. "The Dynamics of the Forward Interest Rate Curve with Stochastic String Shocks," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 14(1), pages 149-85.
  5. Andrea Beltratti & Andrea Consiglio & Stavros A. Zenios, 1998. "Scenario Modeling for the Management of International Bond Portfolios," Center for Financial Institutions Working Papers 98-20, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
  6. Dupacova, Jitka & Bertocchi, Marida, 2001. "From data to model and back to data: A bond portfolio management problem," European Journal of Operational Research, Elsevier, vol. 134(2), pages 261-278, October. [Downloadable!] (restricted)
  7. Heaney, W John & Cheng, Pao L, 1984. " Continuous Maturity Diversification of Default-Free Bond Portfolios and a Generalization of Efficient Diversification," Journal of Finance, American Finance Association, vol. 39(4), pages 1101-17, September. [Downloadable!] (restricted)
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