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A growing literature integrates theories of debt management into models of optimal fiscal policy. One promising theory argues that the composition of government debt should be chosen so that fluctuations in the market value of debt offset changes in expected future deficits. This complete market...
Persistent link: https://www.econbiz.de/10005168476
This paper formulates and analyzes a dynamic optimization problem of bond portfolios within the Markovian Heath-Jarrow-Morton term structure models. In particular we find the exact comdition under which the so-called barbell/bullet strategies become optimal relative to the forecasted term...
Persistent link: https://www.econbiz.de/10005467679