Portfolio Management for a Random Field of Bond Returns
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.
References listed on IDEAS
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- Santa-Clara, Pedro & Sornette, Didier, 2001.
"The Dynamics of the Forward Interest Rate Curve with Stochastic String Shocks,"
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- D. P. Kennedy, 1997. "Characterizing Gaussian Models of the Term Structure of Interest Rates," Mathematical Finance, Wiley Blackwell, vol. 7(2), pages 107-118. Full references (including those not matched with items on IDEAS)
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