A theory of bond portfolios

Details A theory of bond portfolios A theory of bond portfolios

2003-01-24

arxiv.org/abs/math/0301278v3

Annals of Applied Probability 2005, Vol. 15, No. 2, 1260-1305

Mathematics

Optimization and Control

Published at http://dx.doi.org/10.1214/105051605000000160 in the Annals of Applied Probability (http://www.imstat.org/aap/) by

Scientific paper

10.1214/105051605000000160

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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