I have a fixed income portfolio built up in the Yieldbook and BBG Port.
However due to some bad performance of my portfolio compared to the benchmark I would like to build up an optimisation which maximise a score such as the ratio (or not necessarily a ratio) between YTM and risk where risk is a function of duration, rating (S&Ps) and exchange rate currency (I want to keep some bonds in local currency and other not).
The current simulation only considers YTM, duration and rating, and performs badly when the yield curve is flat because it allocates everything at very low maturity and only in US bond due to high rating. Consequently if the interest rates grow that is beneficial but everytime the interest drop then i keep going short duration and I underperform the benchmark.
So my questions are: do you have any reference (paper etc.) on how to formulate such an objective function? also do you think that this score YTM/f(duration, rating, exchange rate) is a proper way to proceed or do you have additional suggestions on how to properly set my objective function?
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