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Journal of Applied Mathematics and Stochastic Analysis
Volume 2006 (2006), Article ID 76920, 19 pages

Bond portfolio's duration and investment term-structure management problem

Institute for Financial Studies, Fudan University, Shanghai 200433, China

Received 30 November 2004; Revised 25 April 2005; Accepted 27 April 2005

Copyright © 2006 Daobai Liu. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


In the considered bond market, there are N zero-coupon bonds transacted continuously, which will mature at equally spaced dates. A duration of bond portfolios under stochastic interest rate model is introduced, which provides a measurement for the interest rate risk. Then we consider an optimal bond investment term-structure management problem using this duration as a performance index, and with the short-term interest rate process satisfying some stochastic differential equation. Under some technique conditions, an optimal bond portfolio process is obtained.