Self‐Financing Trading Strategies for Sliding, Rolling‐Horizon, and Consol Bonds |
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Authors: | Marek Rutkowski |
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Institution: | Institute of Mathematics, Politechnika Warszawska, Warsaw |
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Abstract: | The time evolution of a sliding bond is studied in discrete‐ and continuous‐time setups. By definition, a sliding bond represents the price process of a discount bond with a fixed time to maturity. Examples of measure‐valued trading strategies (introduced by Bj"ork et al. 1997a, 1997b) which are based on the price process of a sliding bond are discussed. In particular, a self‐financing strategy that involves holding at any time one unit of a sliding bond is examined (the wealth process of this strategy is referred to as the rolling‐horizon bond). In contrast to the sliding bond, which does not represent a tradable security, the rolling‐horizon bond (or the rolling‐consol bond) may play the role of a fixed‐income security with infinite lifespan in portfolio management problems. |
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Keywords: | discount bond sliding bond rolling‐horizon bond consol bond term structure model |
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