A bond portfolio optimization model

The Portuguese financial market has been putting tremendous effort into creating a strong technological basis to face the natural evolution of the major international financial markets. This paper describes an optimization portfolio selection model based on yield and risk indices to be applied in bond markets. Assuming a certain scenario, the model gives a best portfolio in real time that provides the bonds to be kept and sold. The mathematical formulation leads into a bilinear fractional programming problem that reduces to a linear program after some simple transformations. Finally the validation of the model is discussed by simulation in a real business environment.