1. ABCD asset management has a fund benchmarked against a USD fixed income index, which includes Treasuries, agency debt, TIPS, mortgages and investment-grade corporate bonds. Specify at least four constraints that can be used by ABCD when formulating a scenario-based optimal portfolio versus an index. Also describe briefly how the scenarios should be selected to avoid an implicit bias in positioning.
2. Discuss the interplay between the weighting (or probabilities) in a set of bearish/bullish scenarios, maxmin, and the constraints used in the optimization.