OPTIMAL PORTFOLIO SELECTION OF BONDS AND STOCKS*

ABSTRACT In the present study, we offer an alternative approach to bond portfolio management which differs from the traditional immunization approach. In doing so, we formalize what has been a common practice among some investors who form portfolios of bonds and stocks with a view to optimizing the trade‐off between risk and return. By using the general multiindex model to characterize the variance‐covariance structure of security returns, both …