Keywords

Bond markets -- United States, Bonds -- Prices -- United States -- Mathematical models, Hamilton Jacobi equations, Liquidity (Economics), Over the counter markets -- United States, Stochastic control theory, Stochastic processes

Abstract

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.

Notes

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Graduation Date

2011

Semester

Spring

Advisor

Yong, Jiongmin

Degree

Doctor of Philosophy (Ph.D.)

College

College of Sciences

Department

Mathematics

Format

application/pdf

Identifier

CFE0003633

URL

http://purl.fcla.edu/fcla/etd/CFE0003633

Language

English

Length of Campus-only Access

None

Access Status

Doctoral Dissertation (Open Access)

Subjects

Dissertations, Academic -- Sciences, Sciences -- Dissertations, Academic

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Included in

Mathematics Commons

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