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Term Structure Modeling in Continuous Time

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Bond Portfolio Optimization

Part of the book series: Lecture Notes in Economics and Mathematical Systems ((LNE,volume 605))

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Abstract

The main inputs of portfolio selection models are the expected values and covariances of the assets under consideration. In equity portfolio selection, the expected values and covariances are oftentimes estimated by analyzing the historical time series of the stocks. Because of bond characteristics and properties of bond portfolio selection models that will be discussed in greater detail in Chapter 4, such an approach is generally ruled out for fixed income instruments. In order to determine the bond portfolio selection parameters consistently, a theoretical model for the evolution of bond prices over time is needed.

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(2008). Term Structure Modeling in Continuous Time. In: Bond Portfolio Optimization. Lecture Notes in Economics and Mathematical Systems, vol 605. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-76593-6_3

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