Robust Bond Portfolio Construction via Convex–Concave Saddle Point Optimization

Eric Luxenberg (), Philipp Schiele () and Stephen Boyd ()
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Eric Luxenberg: Stanford University
Philipp Schiele: Ludwig Maximilian University of Munich
Stephen Boyd: Stanford University

Journal of Optimization Theory and Applications, 2024, vol. 201, issue 3, No 5, 1089-1115

Abstract: Abstract The minimum (worst case) value of a long-only portfolio of bonds, over a convex set of yield curves and spreads, can be estimated by its sensitivities to the points on the yield curve. We show that sensitivity based estimates are conservative, i.e., underestimate the worst case value, and that the exact worst case value can be found by solving a tractable convex optimization problem. We then show how to construct a long-only bond portfolio that includes the worst case value in its objective or as a constraint, using convex–concave saddle point optimization.

Keywords: Robust optimization; Portfolio optimization; Saddle point; Yield curve; 90C17; 90C25; 90C90; 91-08; 91G30 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10957-024-02436-z

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