Dynamic Allocation of Treasury and Corporate Bond Portfolios

Roger Walder
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Roger Walder: University of Lausanne, FAME and Banque Cantonale Vaudoise

FAME Research Paper Series from International Center for Financial Asset Management and Engineering

Abstract: In this paper, we solve the intertemporal investment problem of an investor holding a portfolio of default-free and defaultable bonds. Default-risk is modeled in an intensity based framework with state variables following an affine diffusion. The structure of the optimal portfolio over time is investigated and compared to the static mean-variance portfolio. Furthermore, we describe the impact of time varying market prices of risk and interdependencies between interest rates and credit risk on the optimal portfolio structure.

Keywords: Dynamic Asset Allocation; Portfolio Management; Credit Risk (search for similar items in EconPapers)
JEL-codes: D9 G11 (search for similar items in EconPapers)
Date: 2002-12
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Citations: View citations in EconPapers (2)

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