Self-financing trading strategies for sliding, rolling-horizon, and consol bonds

Abstract

The time evolution of a sliding bond is studied in discrete-and continuous-time setups. By definition, a sliding bond represents the price process of a discount bond with a fixed time to maturity. Examples of measure-valued trading strategies (introduced by Björk et al. 1997a, 1997b) which are based on the price process of a sliding bond are discussed. In particular, a self-financing strategy that involves holding at any time one unit of a sliding bond is examined (the wealth process of this strategy is referred to as the rolling-horizon bond). In contrast to the sliding bond, which does not represent a tradable security, the rolling-horizon bond (or the rolling-consol bond) may play the role of a fixed-income security with infinite lifespan in portfolio management problems.