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A theory of bond portfolios

  • Ekeland, Ivar
  • Taflin, Erik
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    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://basepub.dauphine.fr/xmlui/bitstream/123456789/6041/2/2003-3.pdf
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    File URL: http://basepub.dauphine.fr/xmlui/bitstream/123456789/6041/3/2003-3.ps
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    Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/6041.

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    Date of creation: 2005
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    Publication status: Published in The Annals of Applied Probability, 2005, Vol. 15, no. 2. pp. 1260-1305.Length: 45 pages
    Handle: RePEc:dau:papers:123456789/6041
    Contact details of provider: Web page: http://www.dauphine.fr/en/welcome.html

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    1. Samuelson, Paul A, 1969. "Lifetime Portfolio Selection by Dynamic Stochastic Programming," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 239-46, August.
    2. 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.
    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.
    4. R. C. Merton, 1970. "Optimum Consumption and Portfolio Rules in a Continuous-time Model," Working papers 58, Massachusetts Institute of Technology (MIT), Department of Economics.
    5. Björk, Tomas & Svensson, Lars, 1999. "On the Existence of Finite Dimensional Realizations for Nonlinear Forward Rate Models," SSE/EFI Working Paper Series in Economics and Finance 338, Stockholm School of Economics.
    6. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
    7. Tomas Björk & Yuri Kabanov & Wolfgang Runggaldier, 1997. "Bond Market Structure in the Presence of Marked Point Processes," Mathematical Finance, Wiley Blackwell, vol. 7(2), pages 211-239.
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