TY - JOUR T1 - Bond Portfolio Optimization in the Presence of Duration Constraints JF - The Journal of Fixed Income DO - 10.3905/jfi.2018.1.061 SP - jfi.2018.1.061 AU - Romain Deguest AU - Frank Fabozzi AU - Lionel Martellini AU - Vincent Milhau Y1 - 2018/06/11 UR - https://pm-research.com/content/early/2018/06/11/jfi.2018.1.061.abstract N2 - 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, we 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, we 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. ER -