Price Discovery in the U.S. Bond Market
Author | : Haimei Shao |
Publisher | : |
Total Pages | : 103 |
Release | : 2011 |
ISBN-10 | : OCLC:747250486 |
ISBN-13 | : |
Rating | : 4/5 (86 Downloads) |
Download or read book Price Discovery in the U.S. Bond Market written by Haimei Shao and published by . This book was released on 2011 with total page 103 pages. Available in PDF, EPUB and Kindle. Book excerpt: The world bond market is nearly twice as large as the equity market. The goal of this dissertation is to study the dynamics of bond price. Among the liquidity risk, interest rate risk and default risk, this dissertation will focus on the liquidity risk and trading strategy. Under the mathematical frame of stochastic control, we model price setting in U.S. bond markets where dealers have multiple instruments to smooth inventory imbalances. The difficulty in obtaining the optimal trading strategy is that the optimal strategy and value function depend on each other, and the corresponding HJB equation is nonlinear. To solve this problem, we derived an approximate optimal explicit trading strategy. The result shows that this trading strategy is better than the benchmark central symmetric trading strategy.