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Scenario modeling for the management ofinternational bond portfolios


  • Andrea Beltratti
  • Andrea Consiglio
  • Stavros Zenios


We address the problem of portfolio management in the international bond markets.Interest rate risk in the local market, exchange rate volatility across markets, and decisionsfor hedging currency risk are integral parts of this problem. The paper develops a stochasticprogramming optimization model for integrating these decisions in a common framework.Monte Carlo simulation procedures, calibrated using historical observations of volatilityand correlation data, generate jointly scenarios of interest and exchange rates. The decisionmaker's risk tolerance is incorporated through a utility function, and additional views onmarket outlook can also be incorporated in the form of user specified scenarios. The modelprescribes optimal asset allocation among the different markets and determines bond‐pickingdecisions and appropriate hedging ratios. Therefore, several interrelated decisions are castin a common framework, while in the past these issues were addressed separately. Empiricalresults illustrate the efficacy of the simulation models in capturing the uncertainties of theSalomon Brothers international bond market index. Copyright Kluwer Academic Publishers 1999

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  • Andrea Beltratti & Andrea Consiglio & Stavros Zenios, 1999. "Scenario modeling for the management ofinternational bond portfolios," Annals of Operations Research, Springer, vol. 85(0), pages 227-247, January.
  • Handle: RePEc:spr:annopr:v:85:y:1999:i:0:p:227-247:10.1023/a:1018973828120
    DOI: 10.1023/A:1018973828120

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    References listed on IDEAS

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    Cited by:

    1. Yonghan Feng & Sarah M. Ryan, 2016. "Solution sensitivity-based scenario reduction for stochastic unit commitment," Computational Management Science, Springer, vol. 13(1), pages 29-62, January.
    2. Nonthachote Chatsanga & Andrew J. Parkes, 2016. "International Portfolio Optimisation with Integrated Currency Overlay Costs and Constraints," Papers 1611.01463,
    3. Vladislav Kargin, 2002. "On Bond Portfolio Management," Papers math/0208130,, revised Mar 2003.
    4. Vladislav Kargin, 2003. "Portfolio Management for a Random Field of Bond Returns," Finance 0310007, University Library of Munich, Germany.
    5. Yonghan Feng & Sarah Ryan, 2016. "Solution sensitivity-based scenario reduction for stochastic unit commitment," Computational Management Science, Springer, vol. 13(1), pages 29-62, January.
    6. Frauendorfer, Karl & Schurle, Michael, 2003. "Management of non-maturing deposits by multistage stochastic programming," European Journal of Operational Research, Elsevier, vol. 151(3), pages 602-616, December.
    7. Andrea Beltratti & Paolo Colla, 2007. "A portfolio-based evaluation of affine term structure models," Annals of Operations Research, Springer, vol. 151(1), pages 193-222, April.

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