Bond Portfolio Management, Swap Strategy, Duration, and Convexity

Cheng Few Lee

Chapter 88 in Handbook of Financial Econometrics, Mathematics, Statistics, and Machine Learning:(In 4 Volumes), 2020, pp 3059-3098 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter first focuses on the bond strategies of riding the yield curve and structuring the maturity of the bond portfolio in order to generate additional return. This is followed by a discussion of swapping, which are essentially interest-rate swaps. Next is an analysis of duration or the measure of the portfolio sensitivity to changes in interest rates with and without convexity, after which immunization is the focus. The convexity is essentially discussed in nonlinear relationship between bond price and duration. Finally, a case study is presented of bond-portfolio management in the context of portfolio theory. Overall, this chapter presents how interest rate changes affect bond price and how maturity and duration can be used to manage portfolios.

Keywords: Financial Econometrics; Financial Mathematics; Financial Statistics; Financial Technology; Machine Learning; Covariance Regression; Cluster Effect; Option Bound; Dynamic Capital Budgeting; Big Data (search for similar items in EconPapers)
JEL-codes: C01 C1 G32 (search for similar items in EconPapers)
Date: 2020
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