Dynamic Allocation of Treasury and Corporate Bond Portfolios
نویسندگان
چکیده
In this paper, we solve the intertemporal investment problem of an investor holding a portfolio of default-free and defaultable bonds. Default-risk is modeled in an intensity based framework with state variables following an a¢ne di¤usion. The structure of the optimal portfolio over time is investigated and compared to the static meanvariance portfolio. Furthermore, we describe the impact of time varying market prices of risk and interdependencies between interest rates and credit risk on the optimal portfolio structure. JEL Classi...cation: D9; G11
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