Article ID: | iaor20084529 |
Country: | United States |
Volume: | 2006 |
Issue: | 76920 |
Start Page Number: | 1 |
End Page Number: | 19 |
Publication Date: | Jan 2006 |
Journal: | Journal of Applied Mathematics and Stochastic Analysis |
Authors: | Liu Daobai |
Keywords: | financial, lagrange multipliers |
In the considered bond market, there are N zero-coupon bonds transacted continuously, which will mature at equally spaced dates. A duration of bond portfolios under stochastic interest rate model is introduced, which provides a measurement for the interest rate risk. Then we consider an optimal bond investment term-structure management problem using this duration as a performance index, and with the short-term interest rate process satisfying some stochastic differential equation. Under some technique conditions, an optimal bond portfolio process is obtained.