The Improvement of the Bond Portfolio Construction Models

Student: Churaeva Ekaterina

Educational Programme: Finance (Master)

Year of Graduation: 2016

The paper analyzes the main existing bond portfolio construction models, highlights their features, advantages and disadvantages. The analysis revealed that the main risk that is reflected in the models is the risk of interest rate changes, other types of risk, such as liquidity risk, credit quality, reinvestment risk and other are not included in models. Thus there is a need to consider the main factors that affect the profitability and risk of the bonds as an investment tool. During the work risk factors that significantly affect the yield of the bonds were identified. Based on these factors, a new three-stage bond portfolio construction model was offered. On the basis of new model the bond portfolio has been constructed, this portfolio of bonds has been analyzed from the point of view of efficiency and it was more effective than portfolios constructed by means of other existing models.

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