Bond Portfolio Optimization

By: Michael Puhle

Write A Review

Paperback | 4 January 2008

At a Glance

Paperback
156 Pages

Dimensions(cm)
24.77 x 15.24 x 0.64

Paperback

$149.75

or 4 interest-free payments of $37.44 with

Ships in 5 to 7 business days

1 The tools of modern portfolio theory are in general use in the equity markets, either in the form of portfolio optimization software or as an accepted frame- 2 work in which the asset managers think about stock selection. In the ?xed income market on the other hand, these tools seem irrelevant or inapplicable. Bond portfolios are nowadays mainly managed by a comparison of portfolio 3 4 risk measures vis a vis a benchmark. The portfolio manager's views about the future evolution of the term structure of interest rates translate th- selves directly into a positioning relative to his benchmark, taking the risks of these deviations from the benchmark into account only in a very crude 5 fashion, i.e. without really quantifying them probabilistically. This is quite surprising since sophisticated models for the evolution of interest rates are commonly used for interest rate derivatives pricing and the derivation of ?xed 6 income risk measures. Wilhelm (1992) explains the absence of modern portfolio tools in the ?xed 7 income markets with two factors: historically relatively stable interest rates and systematic di?erences between stocks and bonds that make an application of modern portfolio theory di-cult. These systematic di?erences relate mainly to the ?xed maturity of bonds. Whereas possible future stock prices become more dispersed as the time horizon widens, the bond price at maturity is 8 ?xed. This implies that the probabilistic models for stocks and bonds have 1 Starting with the seminal work of Markowitz (1952).

Shipping

	Standard Shipping	Express Shipping
Metro postcodes:	$9.99	$14.95
Regional postcodes:	$9.99	$14.95
Rural postcodes:	$9.99	$14.95

Orders over $79.00 qualify for free shipping.

How to return your order

At Booktopia, we offer hassle-free returns in accordance with our returns policy. If you wish to return an item, please get in touch with Booktopia Customer Care.

Additional postage charges may be applicable.

Defective items

If there is a problem with any of the items received for your order then the Booktopia Customer Care team is ready to assist you.

For more info please visit our Help Centre.

You Can Find This Book In

Non-Fiction Accounting & Finance Finance Investment & Securities Mathematics Optimisation Linear Programming Business & Management Operational Research

Acknowledgements	p. v
Abbreviations	p. xi
Commonly Used Symbols	p. xiii
Introduction	p. 1
Bond Market Terminology	p. 5
Characteristics of Bonds	p. 5
Interest Rates	p. 6
Term Structure of Interest Rates	p. 8
Estimating the Term Structure of Interest Rates	p. 9
Classical Theories of the Term Structure of Interest Rates	p. 10
Arbitrage-Free Term Structure Theories	p. 11
Empirical Properties of the Term Structure of Interest Rates	p. 11
Term Structure Modeling in Continuous Time	p. 13
Introduction	p. 13
Interest Rate Modeling Approaches	p. 14
Heath/Jarrow/Morton (1992)	p. 17
Introduction	p. 17
Dynamics of Traded Securities	p. 18
Arbitrage-Free Pricing	p. 19
Excursus: The HJM Drift Condition	p. 20
The Short Rate of Interest	p. 21
Special Cases	p. 22
Vasicek (1977)	p. 23
Introduction	p. 23
Derivation of Zero-Coupon Bond Prices	p. 23
Properties	p. 26
Hull/White (1994)	p. 30
Introduction	p. 30
Derivation of Zero-Coupon Bond Prices	p. 31
Properties	p. 35
Summary and Conclusion	p. 39
Static Bond Portfolio Optimization	p. 41
Introduction	p. 41
Static Bond Portfolio Selection in Theory	p. 41
A Short Review of Modern Portfolio Theory	p. 41
Application to Bond Portfolios	p. 43
Obtaining the Parameters	p. 48
One-Factor Vasicek (1977) Model	p. 51
Two-Factor Hull/White (1994) Model	p. 60
Static Bond Portfolio Selection in Practice	p. 66
Introduction	p. 66
Active Bond Portfolio Selection Strategies	p. 67
Passive Bond Portfolio Selection Strategies	p. 77
Summary and Conclusion	p. 82
Dynamic Bond Portfolio Optimization in Continuous Time	p. 85
Introduction	p. 85
Bond Portfolio Selection Problem in a HJM Framework	p. 87
Dynamics of Prices and Wealth	p. 87
The Hamilton/Jacobi/Bellman Equation	p. 89
Derivation of Optimum Portfolio Weights	p. 91
The Value Function for CRRA Utility Functions	p. 94
Special Cases	p. 96
One-Factor Vasicek (1977) Model	p. 96
Two-Factor Hull/White (1994) Model	p. 100
International Bond Investing	p. 105
Introduction	p. 105
Model Setup	p. 106
Derivation of the Optimum Portfolio Weights	p. 109
Interpretation of the Optimum Portfolio Weights	p. 111
Numerical Example	p. 112
Summary and Conclusion	p. 113
Summary and Conclusion	p. 115
Heath/Jarrow/Morton (1992)	p. 119
Dynamics of Zero-Coupon Bonds	p. 119
Arbitrage-Free Pricing	p. 120
HJM Drift Condition	p. 121
Special Case: Hull/White (1994)	p. 122
Dynamic Bond Portfolio Optimization	p. 123
Dynamic Bond Portfolio Optimization	p. 125
Vasicek (1977)	p. 125
Hull/White (1994)	p. 125
International Bond Portfolio Selection	p. 126
References	p. 127
List of Tables	p. 135
List of Figures	p. 137
Table of Contents provided by Ingram. All Rights Reserved.

Bond Portfolio Optimization

At a Glance

Paperback

Shipping

How to return your order

Defective items

You Can Find This Book In

More in Finance

Geopolitical Alpha

An Investment Framework for Predicting the Future

Lucky Loser

How Donald Trump Squandered His Father's Fortune and Created the Illusion of Success

J.K. Lasser's 1001 Deductions and Tax Breaks 2026

Your Complete Guide to Everything Deductible

J.K. Lasser's Small Business Taxes 2026

Your Complete Guide to a Better Bottom Line

The Warren Buffett Way

30th Anniversary Edition

How To Not Work Forever

Start Investing and Build a Life You Love

The Quick-Start Guide to Investing

Learn How to Invest Simpler, Smarter and Sooner, WINNER of ABBA BOOK OF THE YEAR and PERSONAL FINANCE & INVESTING

A History of Central Banking and the Enslavement of Mankind

The Trading Game

A Confession

Property Secrets of the Rich

For readers of Rich Dad Poor Dad and The Intelligent Investor

The World for Sale

Money, Power and the Traders Who Barter the Earth's Resources

Investing with She's on the Money

Build your future wealth: from the creator of the #1 finance podcast

Technofeudalism

What Killed Capitalism

The Intelligent Investor Third Edition

The Art of Spending Money

Simple Choices for a Richer Life

Profit First

Transform Your Business from a Cash-Eating Monster to a Money-Making Machine

A History of Central Banking and the Enslavement of Mankind

Richer, Wiser, Happier

How the World's Greatest Investors Win in Markets and Life

Property = Wealth

The Ultimate Guide to Building a Multi-Million-Dollar Property Empire

The Richest Man in Babylon

Don't Stress, Just Invest

It's time to set up your investments and get on with your life

Friends That Invest

Your Guide to Financial Independence Through Shares and Stocks

Invest Your Way

How to Grow Your Wealth on Your Terms

Top Stocks 2026

A Sharebuyer's Guide to Leading Australian Companies

This product is categorised by