We propose an economically motivated forecast combination strategy in which model weights are related to portfolio returns obtained by a given forecast model. An empirical application based on an optimal mean-variance bond portfolio problem is used to highlight the advantages of the proposed...

Dynamic factor models for the yield curve have been extensively applied to fit and forecast the yield curve. We propose a novel utilization of these models in bond portfolio optimization. Specifically, we derive closed-form expressions for the vector of expected bond returns and for its...

We propose a novel approach to measure risk in fixed income portfolios in terms of value-at-risk (VaR). We use closed-form expressions for the vector of expected bond returns and for the covariance matrix of bond returns based on a general class of well established term structure factor models,...