Published Articles

Publication Citation
Advanced Fixed Income Portfolio Management Probus Publishing Company (1994), H. Gifford Fong and Frank J. Fabozzi
The Paradox of Quantitative Innovation Financial Analyst Journal (July/August 1989), H. Gifford Fong, Investment decision-making is increasingly turning to quantitative methods. Quantitative methods are becoming increasingly complex. The multitude of approaches, and the subtle yet potentially important differences between them, pose a daunting challenge. How do we discriminate between the available alternatives? How can we tell which we "good" and which we "not so good"? Given this inability to differentiate between the qualitative contents of different approaches the very suitability of quantitative innovation may be endangered.
Forecast-Free International Asset Allocation Financial Analyst Journal (March/April, 1989), H. Gifford Fong and Oldrich Vasicek, The multiple asset performance (MAP) strategy uses option pricing theory to allocate portfolio assets across international equity markets without forecasting expected returns. The return to the MAP portfolio will be the return on the best performing asset, less a predetermined percentage cost. Historical simulations over the 1978-87 period indicated that the MAP strategy would have out performed a world equity index on an annual basis. Furthermore, while Japanese stocks-the best performers over this period- achieved a mean annual return of 26.5 percent, their returns ranged from 13.7 to 98.2 percent, with a standard deviation of 29.7 percent. The MAP strategy with a mean annual return of 19.4 percent, captured much of the best performer's return, and did so with a lower standard deviation (20.2 percent) and no loss of capital in any year.
Dow Jones-Irwin Fixed Income Portfolio Management (1985), H. Gifford Fong and Frank J. Fabozzi
Bond Performance: Analyzing Sources of Return The Journal of Portfolio Management (Spring, 1983), H. Gifford Fong, Charles Pearson and Oldrich Vasicek, Early work in bond portfolio performance measurement focused on measuring the total return of the portfolio. This focus involved establishing alternative measures of performance suitable for comparing the total return of one portfolio with the performance of another portfolio, an index, or the investment objectives of the fund sponsor. While this allows an assessment of the total portfolio's results relative to the market conditions, it provides insufficient insight into the underlying causes of the experienced performance. This article describes a framework for comprehensively measuring and understanding the performance of a fixed-income portfolio. Macro components include the external interest rate environment and the managerial contribution to total returns. A more refined perspective is achieved by partitioning the external interest rate environment into expected and unexpected components. The managerial contribution is further partitioned into the return components of maturity, sector/quality, and individual security selection. These components are then contrasted with those of a total bond market index.
Term Structure Modeling Using Exponential Splines Journal of Finance (May, 1982), Oldrich Vasicek and H. Gifford Fong, Although a number of theoretical equilibrium models have been proposed in the past (Brennan and Schwartz[1979], Cox, Ingersoll, and Ross[1981], Langetieg[1980]), the spot rate curves derived by these models (at least in the instances when it was possible to obtain explicit formulas) do not conform well to the observed data on bond yields and prices. This paper presents a different approach, which can be termed an exponential spline fitting. The methodology described here has been applied to historical price data on U.S. Treasury securities with satisfactory results. The technique produces forward rates that are smooth continuous functions of time. The model has desirable asymptotic properties for long maturities, and exhibits both a sufficient flexibility to fit a wide variety of shapes of the term structure, and a sufficient robustness to produce stable forward rate curves. An adjustment for the effect of taxes and for the call features on U.S. Treasury bonds is included in the model.