The Optimal Bond Portfolio Theory And Empirical Analysis Of Chinese Bond Fund

This article contains two parts, one is literature review of the optimal bond portfolio theory, the other is using the quasi-dynamic programming approach by Sorensen and sensitivity analysis to solve the optimization problem of Chinese bond with Vasicek interest rate and CRRA utility. The parameter based on the term structure of interest rate and conclusion of existing thesis.The conclusion of the first part is there is already theoretical paradigm in the continuous and complete market hypothesis; future analysis can focus on discrete and incomplete market scenarios.The sensitivity analysis result of the second part shows that term structure of interest rate and risk aversion coefficient are the key factors determine the optimal portfolio, which need careful measurement. Other things equal, when the risk aversion coefficient grows, the investment share on the bond drives from dumbbell-shaped to the target duration, while it depends when it comes to the stock share. When the short term is less than the long term interest rate, the investment share increases as risk aversion coefficient grows; while the short term is more than the long term interest rate, it comes the opposite.