Self‐Financing Trading Strategies for Sliding, Rolling‐Horizon, and Consol Bonds

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. Copyright Blackwell Publishers Inc 1999.