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Bond Portfolio Management, Swap Strategy, Duration, and Convexity

In: Handbook of Investment Analysis, Portfolio Management, and Financial Derivatives In 4 Volumes

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  • Cheng Few Lee

Abstract

This chapter first focuses on the bond strategies of riding the yield curve and structuring the maturity of the bond portfolio in order to generate additional return. This is followed by a discussion on swapping, which is essentially interest-rate swapping. Next is an analysis of duration or the measure of the portfolio sensitivity to changes in interest rates with and without convexity, after which immunization is the focus. The convexity is essentially discussed as a nonlinear relationship between bond price and duration. Finally, a case study of bond-portfolio management is presented in the context of portfolio theory. Overall, this chapter presents how interest rates change affect bond price and how maturity and duration can be used to manage portfolios.

Suggested Citation

  • Cheng Few Lee, 2024. "Bond Portfolio Management, Swap Strategy, Duration, and Convexity," World Scientific Book Chapters, in: Cheng Few Lee & Alice C Lee & John C Lee (ed.), Handbook of Investment Analysis, Portfolio Management, and Financial Derivatives In 4 Volumes, chapter 79, pages 2501-2539, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811269943_0079
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    Keywords

    Financial Accounting; Financial Auditing; Mutual Funds; Hedge Funds; Asset Pricing; Options; Portfolio Analysis; Risk Management; Investment Analysis; Momentum Analysis; Behavior Analysis; Futures; Index Futures; CDCs; Financial Econometrics; Statistics; Financial Derivatives; Financial Accounting;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G1 - Financial Economics - - General Financial Markets
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • G3 - Financial Economics - - Corporate Finance and Governance

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