This work discusses trading strategies with focus on the application in the government bond market. An arbitrage-free yield curve prediction model and a parametric estimation method are presented to form the basis of finding trading strategies. The arbitrage-free model is based on the Heath-Jarrow-Morton model. The parametric approach is the Dynamic Nelson-Siegel method. For the US Treasury yield curve the performance of both methods is tested and compared to each other.
Moreover, portfolio optimization with respect to the conditional value at risk is illustrated. A smoothing technique and the Nesterov procedure are exhibited as efficient implementations of the linked portfolio selection problem. At last, it is shown in an example for US Treasuries how the estimated yield curve can be incorporated into portfolio optimization to derive trading strategies.
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In der vorliegende Arbeit wird gezeigt, wie Strategien für das Handeln von staatlichen Obligationen entwickelt werden können. Die Basis hierzu bilden ein arbitrage-freier Ansatz und ein parametrischer Ansatz, um die Zinskurve vorherzusagen. Der arbitrage-freie Ansatz basiert auf dem Heath-Jarrow-Morton Modell, der parametrische Ansatz ist die dynamische Nelson-Siegel Methode. Der praktische Nutzen beider Verfahren wird für US Staatsanleihen untersucht und einander gegenüber gestellt.
Im Weiteren wird die Theorie der Portfolio Optimierung bezüglich des Conditional Value at Risks vorgestellt und zwei Verfahren zu dessen effizienten Implementierung erklärt. Schlussendlich wird an einem Beispiel für US Staatsanleihen gezeigt, wie die Methoden zur Zinsvorhersage in das Porfoliooptimierungsproblem mit einbezogen werden können, um Handelsstrategien zu entwickeln.
Inhaltsverzeichnis (Table of Contents)
- Abbreviations & Symbols
- Preface
- An Overview of Bonds
- Bond Prices and The Yield Curve
- Forces Driving Bond Prices
- Arbitrage-free Yield Modelling
- General Concepts
- The Heath-Jarrow-Morton Model
- The Time Discrete Heath-Jarrow-Morton Model
- Empirical Quality of the Time Discrete HJM Model
- Parametric Yield Curve Estimation
- The Dynamic Nelson-Siegel Method
- Shortcomings of the Dynamic Nelson-Siegel Method
- Empirical Quality of the DNS Method
- Portfolio Optimization
- Optimal Portfolio with Regards to Conditional Value at Risk
- Efficient Implementation
- Example of Optimal Portfolios
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This work focuses on developing trading strategies for government bonds. It introduces two approaches to yield curve prediction, an arbitrage-free model and a parametric estimation method. The performance of these methods is analyzed and compared in the context of US Treasury bonds. Additionally, the concept of portfolio optimization with respect to conditional value at risk is explained and two methods for its efficient implementation are presented. Finally, the study demonstrates how yield curve estimations can be integrated into portfolio optimization to generate trading strategies.
- Arbitrage-free yield curve prediction
- Parametric yield curve estimation
- Portfolio optimization with conditional value at risk
- Application of yield curve estimations in trading strategies
- Comparison of different methodologies for bond market analysis
Zusammenfassung der Kapitel (Chapter Summaries)
- Chapter 2: An Overview of Bonds This chapter provides an introduction to the bond market, defining basic concepts like bond prices, yield curves, and the factors influencing bond prices.
- Chapter 3: Arbitrage-free Yield Modelling This chapter delves into the theory of arbitrage-free yield curve modeling, focusing on the Heath-Jarrow-Morton (HJM) model. The chapter presents the model in both its continuous and discrete time formulations and examines its empirical performance for US Treasury bonds.
- Chapter 4: Parametric Yield Curve Estimation Chapter 4 introduces the dynamic Nelson-Siegel (DNS) method, a parametric approach to yield curve estimation. It discusses the strengths and limitations of this method and assesses its empirical accuracy when applied to the US Treasury yield curve.
- Chapter 5: Portfolio Optimization This chapter explores the concept of portfolio optimization with respect to conditional value at risk (CVaR). It examines two efficient implementations of CVaR-based portfolio optimization: smoothing techniques and the Nesterov procedure. The chapter concludes with an example of optimal portfolios derived using these techniques.
Schlüsselwörter (Keywords)
Government bonds, yield curve prediction, arbitrage-free model, Heath-Jarrow-Morton model, parametric estimation, dynamic Nelson-Siegel method, portfolio optimization, conditional value at risk, trading strategies, US Treasury bonds.
- Quote paper
- Niklas Lachenicht (Author), 2015, Trading Strategies In Bond Markets, Munich, GRIN Verlag, https://www.grin.com/document/359274
