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Dynamic Allocation of Treasury and Corporate Bond Portfolios

Author

Listed:
  • Roger Walder

    (University of Lausanne, FAME and Banque Cantonale Vaudoise)

Abstract
In this paper, we solve the intertemporal investment problem of an investor holding a portfolio of default-free and defaultable bonds. Default-risk is modeled in an intensity based framework with state variables following an affine diffusion. The structure of the optimal portfolio over time is investigated and compared to the static mean-variance portfolio. Furthermore, we describe the impact of time varying market prices of risk and interdependencies between interest rates and credit risk on the optimal portfolio structure.

Suggested Citation

  • Roger Walder, 2002. "Dynamic Allocation of Treasury and Corporate Bond Portfolios," FAME Research Paper Series rp64, International Center for Financial Asset Management and Engineering.
    • Handle: RePEc:fam:rpseri:rp64
    as

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    File URL: http://www.swissfinanceinstitute.ch/rp61.pdf
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Tomasz Bielecki & Inwon Jang, 2006. "Portfolio optimization with a defaultable security," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 13(2), pages 113-127, June.
    2. Andrea Beltratti & Paolo Colla, 2007. "A portfolio-based evaluation of affine term structure models," Annals of Operations Research, Springer, vol. 151(1), pages 193-222, April.

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    More about this item

    Keywords

    Dynamic Asset Allocation; Portfolio Management; Credit Risk;
    All these keywords.

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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