A Dynamic Stochastic Programming Model for Bond Portfolio Management

In this paper we develop a dynamic stochastic programming model for bond portfolio management. A new risk measurement-shortfall cost is put forward. It allows more tangible expression of the risks that the decision makers face than does the traditional risk measure-variance of terminal wealth. We also adopt the interest rate model of Black et al. to generate scenarios of riskless short rates at future periods. An example of bond portfolio management is presented to illustrate that our model dominates the usual fixed-mix model.

• Type: Conference
• Year: 2004
• Where: ICCS
• Authors: Liyong Yu, Shouyang Wang, Yue Wu, Kin Keung Lai
• Keywords: Bond Portfolio Management, ICCS 2004, Stochastic Programming Model, Usual fixed-mix Model