Sciweavers

FS
2006

Optimal portfolio choice in the bond market

13 years 3 months ago
Optimal portfolio choice in the bond market
We consider the Merton problem of optimal portfolio choice when the traded instruments are the set of zero-coupon bonds. Working within an infinite-factor Markovian Heath-Jarrow-Morton model of the interest rate term structure, we give sufficient conditions for the existence and uniqueness of an optimal trading strategy. When there is uniqueness, we provide a characterization of the optimal porfolio as a sum of mutual funds. Furthermore, we show that a Gauss-Markov random field model proposed by Kennedy [22] can be treated in this framework, and explicitly calculate the optimal portfolio. We show that the optimal portfolio in this case can identified with the discontinuities of a certain function of the market parameters.
Nathanael Ringer, Michael Tehranchi
Added 12 Dec 2010
Updated 12 Dec 2010
Type Journal
Year 2006
Where FS
Authors Nathanael Ringer, Michael Tehranchi
Comments (0)