Dynamic Optimality of Yield Curve Strategies (Published in "International Review of Finance", Vol.4, 49-78, 2003. )

Takao Kobayashi, Akihiko Takahashi and Norio Tokioka
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Takao Kobayashi: Faculty of Economics, University of Tokyo
Akihiko Takahashi: Faculty of Economics, University of Tokyo
Norio Tokioka: Faculty of Economics, Seikei University.

No CARF-F-013, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: This paper formulates and analyzes a dynamic optimization problem of bond portfolios within Markovian Heath-Jarrow-Morton term structure models. In particular, we investigate optimal yield curve strategies analytically and numerically, and provide theoretical justification for a typical strategy which is recommended in practice for an expected change in the shape of the yield curve. In the numerical analysis, we utilize a new technique based on the asymptotic expansion approach in order to increase efficiency in computation.

Pages: 53 pages
Date: 2004-09
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Persistent link: https://EconPapers.repec.org/RePEc:cfi:fseres:cf013

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