OPTIMAL PORTFOLIOS OF CORPORATE BONDS AND HOLD TO MATURITY STRATEGIES
Yaacov Kopeliovich ()
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Yaacov Kopeliovich: Department of Finance, University of Connecticut, Storrs, Connecticut 06239, USA
Annals of Financial Economics (AFE), 2015, vol. 10, issue 02, 1-34
In this paper, we initiate a research on optimal bond portfolios, that are held to their maturity. We solve the problem analytically for log utility investor in the case of one risky corporate asset. We compare the behavior of these portfolios to equally weighted and portfolios with randomly selected weights. We apply simulation based on Vasicek’s copula approach to derive optimal weights for a corresponding problem involving more than one corporate bond. Further we discover that these portfolios outperform naive investment in constant maturity (CCM) bond indices with a similar maturity horizon. We explain possible application of our findings to boost asset liability management (ALM) strategies for pensions and insurance companies.
Keywords: Optimal portfolios; mean variance hold to maturity; equally weighted benchmark; constant maturity indices (search for similar items in EconPapers)
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