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Dynamic Optimality of Yield Curve Strategies *
Author(s) -
Kobayashi Takao,
Takahashi Akihiko,
Tokioka Norio
Publication year - 2003
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/j.1369-412x.2003.00043.x
Subject(s) - yield curve , computation , yield (engineering) , mathematical optimization , term (time) , mathematics , order (exchange) , bond , mathematical economics , econometrics , computer science , economics , algorithm , finance , materials science , physics , quantum mechanics , metallurgy
This paper formulates and analyzes a dynamic optimization problem of bond portfolios within Markovian Heath–Jarrow–Morton term structure models. In particular, we investigate optimal yield curve strategies analytically and numerically, and provide theoretical justification for a typical strategy which is recommended in practice for an expected change in the shape of the yield curve. In the numerical analysis, we utilize a new technique based on the asymptotic expansion approach in order to increase efficiency in computation.