CIRJE-F-299 | "Dynamic Optimality of Yield Curve Strategies" |
Author Name | Kobayashi, Takao, Akihiko Takahashi and Norio Tokioka |
Date | September 2004 |
Full Paper | PDF file@ |
Remarks | Subsequently published in International Review of Finance, Vol.4, 49-78, 2003(published in 2005) |
Abstract |
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. |