Dynamic Optimality of Yield Curve Strategies-super-

This paper formulates and analyzes a dynamic optimization problem of bond portfolios within Markovian Heath-Jarrow-Morton term structure models. In particular, we investigate optimal yield curve strategies analytically and numerically, and provide theoretical justification for a typical strategy which is recommended in practice for an expected change in the shape of the yield curve. In the numerical analysis, we utilize a new technique based on the "asymptotic expansion approach" in order to increase efficiency in computation. Copyright (c) International Review of Finance Ltd. 2003.