%0 Journal Article %A Romain Deguest %A Frank Fabozzi %A Lionel Martellini %A Vincent Milhau %T Bond Portfolio Optimization in the Presence of Duration Constraints %D 2018 %R 10.3905/jfi.2018.1.061 %J The Journal of Fixed Income %P 6-26 %V 28 %N 1 %X Although there exists an abundant literature on the benefits and limits of scientific diversification in the equity universe, little is known about the out-of-sample performance of portfolio optimization models in the fixed-income universe. In this article, the authors address two key challenges that are specific to bond portfolio optimization, namely, the presence of duration constraints and the presence of no-arbitrage restrictions on risk parameter estimates, for which no equivalent exists in the equity universe. In an application to sovereign bonds in the eurozone, they find that the use of portfolio optimization techniques based on robust estimators for risk parameters generates an improvement in investor welfare compared with the use of ad hoc bond benchmarks such as equally weighted or cap-weighted portfolios. These results are robust with respect to changes in the number of constituents in the portfolio and the rebalancing period, and in the presence of duration or weight constraints.TOPICS: Fixed income and structured finance, fixed-income portfolio management, statistical methods %U https://jfi.pm-research.com/content/iijfixinc/28/1/6.full.pdf