Bond Selection

Gueorgui S. Konstantinov, Frank J. Fabozzi and Joseph S. Simonian

Chapter 7 in Quantitative Global Bond Portfolio Management, 2023, pp 205-228 from World Scientific Publishing Co. Pte. Ltd.

Abstract: In contrast to portfolio level allocation described in the previous chapter, bond selection is concerned with determining which individual bonds to include in a portfolio from a universe of candidate bonds based on criteria relating to factor exposures, duration, ratings, and spread risk. In this chapter, we discuss different aspects of bond selection and consider the challenges in applying a number of traditional optimization techniques like the mean–variance optimization (MVO) and Black–Litterman frameworks described in the previous chapter to the allocation of individual bonds.The focus of this chapter is the bottom-up process in which the portfolio is constructed using the characteristics of individual bonds. Following a bottom-up approach, a portfolio’s ultimate weights are the result of an evaluation of individual bond risk and expected returns. Rigorous analysis is a necessary step to extend the bottom-up process to other sub-asset classes and to asset classes like currencies, countries, or sectors.

Keywords: Fixed-Income; Currency Management; Portfolio Management; Risk Management; Factors; Portfolio Optimization; Hedging; Portfolio Evaluation; Performance Attribution (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 (search for similar items in EconPapers)
Date: 2023
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