@article{ART002734294},
author={Sang-Heon Lee and Geonho Choi and Hosam Ki},
title={Efficient KTB Portfolio using Coupon Bearing Bond Mean-Variance Optimization Model},
journal={Asset Management Review},
issn={2288-6672},
year={2021},
volume={9},
number={1},
pages={22-47},
doi={10.23007/amr.2021.9.1.22}
TY - JOUR
AU - Sang-Heon Lee
AU - Geonho Choi
AU - Hosam Ki
TI - Efficient KTB Portfolio using Coupon Bearing Bond Mean-Variance Optimization Model
JO - Asset Management Review
PY - 2021
VL - 9
IS - 1
PB - Institute of Management Research, SungKyunKwan University
SP - 22
EP - 47
SN - 2288-6672
AB - The purpose of this paper is to extend zero-coupon bond (ZCB) mean-variance portfolio optimization model to coupon bearing bond (CBB) counterpart and perform the empirical analysis for the efficient portfolio of KTB (Korean Treasury Bond). As KTB is issued as the semi-annual coupon bond, it is appropriate for CBB portfolio model to be used. We introduce the no arbitrage condition between CBBs and ZCBs as an additional constraint into an otherwise standard mean-variance bond optimization model. From the empirical analysis of KTB from 2006 to 2020, our finding is four-fold. First, the optimal CBB portfolio is similar to ZCB portfolio. Second, CBB portfolio is slightly different from the ZCB portfolio when considering target duration constraint.
Third, the selection of maturities and introduction of strips result in the substitution effect between maturities. Fourth, from the perspective of financial institutions such as bank and insurance companies, some concentrated allocations (corner solutions) and the abrupt changes in weights are needed to be mitigated. The implication of our study is that it is appropriate to use this parsimonious CBB portfolio optimization model for strategic bond portfolio management.
KW - coupon bearing bond;mean-variance optimization;Sharpe ratio;diversification effect;dynamic Nelson-Siegel model
DO - 10.23007/amr.2021.9.1.22
ER -
Sang-Heon Lee, Geonho Choi and Hosam Ki. (2021). Efficient KTB Portfolio using Coupon Bearing Bond Mean-Variance Optimization Model. Asset Management Review, 9(1), 22-47.
Sang-Heon Lee, Geonho Choi and Hosam Ki. 2021, "Efficient KTB Portfolio using Coupon Bearing Bond Mean-Variance Optimization Model", Asset Management Review, vol.9, no.1 pp.22-47. Available from: doi:10.23007/amr.2021.9.1.22
Sang-Heon Lee, Geonho Choi, Hosam Ki "Efficient KTB Portfolio using Coupon Bearing Bond Mean-Variance Optimization Model" Asset Management Review 9.1 pp.22-47 (2021) : 22.
Sang-Heon Lee, Geonho Choi, Hosam Ki. Efficient KTB Portfolio using Coupon Bearing Bond Mean-Variance Optimization Model. 2021; 9(1), 22-47. Available from: doi:10.23007/amr.2021.9.1.22
Sang-Heon Lee, Geonho Choi and Hosam Ki. "Efficient KTB Portfolio using Coupon Bearing Bond Mean-Variance Optimization Model" Asset Management Review 9, no.1 (2021) : 22-47.doi: 10.23007/amr.2021.9.1.22
Sang-Heon Lee; Geonho Choi; Hosam Ki. Efficient KTB Portfolio using Coupon Bearing Bond Mean-Variance Optimization Model. Asset Management Review, 9(1), 22-47. doi: 10.23007/amr.2021.9.1.22
Sang-Heon Lee; Geonho Choi; Hosam Ki. Efficient KTB Portfolio using Coupon Bearing Bond Mean-Variance Optimization Model. Asset Management Review. 2021; 9(1) 22-47. doi: 10.23007/amr.2021.9.1.22
Sang-Heon Lee, Geonho Choi, Hosam Ki. Efficient KTB Portfolio using Coupon Bearing Bond Mean-Variance Optimization Model. 2021; 9(1), 22-47. Available from: doi:10.23007/amr.2021.9.1.22
Sang-Heon Lee, Geonho Choi and Hosam Ki. "Efficient KTB Portfolio using Coupon Bearing Bond Mean-Variance Optimization Model" Asset Management Review 9, no.1 (2021) : 22-47.doi: 10.23007/amr.2021.9.1.22
