Kristine Bjørnstad

Kristine Bjørnstad completed her doctorate at the Department of Mathematics of the University of Oslo, where her dissertation developed Hamilton-Jacobi-Bellman methods for optimal portfolio allocation in fixed income markets with stochastic interest rates. The work formulated the bond portfolio problem under Cox-Ingersoll-Ross and Hull-White short rate dynamics as a stochastic control problem in which the value function satisfies a degenerate HJB equation on the space of bond maturities, and established classical and viscosity solution results for both finite and infinite horizon variants. The dissertation also addressed the problem of optimal immunisation — matching the interest rate sensitivity of a liability stream using a dynamically rebalanced portfolio of bonds — in a stochastic setting where the yield curve moves according to a multi-factor affine term structure model, deriving the optimal rebalancing rule and characterising the associated hedging error in terms of the model parameters and the rebalancing frequency.

Following her doctorate, Bjørnstad developed a robust HJB framework for fixed income portfolio optimisation under model uncertainty, formulating the problem as a minimax stochastic control problem in which the investor chooses a portfolio and an adversary simultaneously perturbs the short rate dynamics within a Wasserstein neighbourhood of the reference model. This framework yields a modified HJB equation whose solution characterises the optimal robust policy and the worst-case term structure perturbation simultaneously, and provides an analytically tractable approach to interest rate risk management that does not require commitment to a specific calibrated model. A complementary programme addressed optimal filtering for partially observed term structure models — where the short rate process is not directly observable — and its application to the construction of hedging strategies robust to observation noise.

At IADU, Bjørnstad contributes stochastic control theory to the Institute's fixed income and sovereign debt research programme. Her work applies HJB methods to optimal sovereign debt issuance and redemption scheduling, the design of robust interest rate risk management strategies for sovereign debt offices operating under model uncertainty, and the stochastic control foundations of optimal reserve allocation for central banks with fixed income mandates.