Dor / Dynkin / Hyman Quantitative Credit Portfolio Management

Practical Innovations for Measuring and Controlling Liquidity, Spread, and Issuer Concentration Risk
1. Auflage 2011
ISBN: 978-1-118-16736-6
Verlag: John Wiley & Sons
Format: PDF
Kopierschutz: Adobe DRM (»Systemvoraussetzungen)

E-Book, Englisch, 416 Seiten, E-Book

Reihe: Frank J. Fabozzi Series

An innovative approach to post-crash credit portfoliomanagement
Credit portfolio managers traditionally rely on fundamentalresearch for decisions on issuer selection and sector rotation.Quantitative researchers tend to use more mathematical techniquesfor pricing models and to quantify credit risk and relative value.The information found here bridges these two approaches. In anintuitive and readable style, this book illustrates howquantitative techniques can help address specific questions facingtoday's credit managers and risk analysts.
A targeted volume in the area of credit, this reliable resourcecontains some of the most recent and original research in thisfield, which addresses among other things important questionsraised by the credit crisis of 2008-2009. Divided into twocomprehensive parts, Quantitative Credit PortfolioManagement offers essential insights into understanding therisks of corporate bonds--spread, liquidity, and Treasuryyield curve risk--as well as managing corporate bondportfolios.
* Presents comprehensive coverage of everything from durationtime spread and liquidity cost scores to capturing the creditspread premium
* Written by the number one ranked quantitative research groupfor four consecutive years by Institutional Investor
* Provides practical answers to difficult question, including:What diversification guidelines should you adopt to protectportfolios from issuer-specific risk? Are you well-advised to sellsecurities downgraded below investment grade?
Credit portfolio management continues to evolve, but with thisbook as your guide, you can gain a solid understanding of how tomanage complex portfolios under dynamic events.

Autoren/Hrsg.

Dor, Arik Ben

Dynkin, Lev

Hyman, Jay

Phelps, Bruce

Inhaltsverzeichnis

Foreword xvii
Introduction xix
Notes on Terminology xxvii
PART ONE Measuring the Market Risks of CorporateBonds
CHAPTER 1 Measuring Spread Sensitivity of Corporate Bonds3
Analysis of Corporate Bond Spread Behavior 5
A New Measure of Excess Return Volatility 20
Refinements and Further Tests 25
Summary and Implications for Portfolio Managers 30
Appendix: Data Description 34
CHAPTER 2 DTS for Credit Default Swaps 39
Estimation Methodology 40
Empirical Analysis of CDS Spreads 41
Appendix: Quasi-Maximum Likelihood Approach 51
CHAPTER 3 DTS for Sovereign Bonds 55
Spread Dynamics of Emerging Markets Debt 55
DTS for Developed Markets Sovereigns: The Case of EuroTreasuries 59
Managing Sovereign Risk Using DTS 66
CHAPTER 4 A Theoretical Basis for DTS 73
The Merton Model: A Zero-Coupon Bond 74
Dependence of Slope on Maturity 77
CHAPTER 5 Quantifying the Liquidity of Corporate Bonds81
Liquidity Cost Scores (LCS) for U.S. Credit Bonds 82
Liquidity Cost Scores: Methodology 88
LCS for Trader-Quoted Bonds 92
LCS for Non-Quoted Bonds: The LCS Model 96
Testing the LCS Model: Out-of-Sample Tests 102
LCS for Pan-European Credit Bonds 113
Using LCS in Portfolio Construction 123
Trade Efficiency Scores (TES) 129
CHAPTER 6 Joint Dynamics of Default and Liquidity Risk133
Spread Decomposition Methodology 138
What Drives OAS Differences across Bonds? 139
How Has the Composition of OAS Changed? 141
Spread Decomposition Using an Alternative Measure of ExpectedDefault Losses 145
High-Yield Spread Decomposition 147
Applications of Spread Decomposition 147
Alternative Spread Decomposition Models 150
Appendix 152
CHAPTER 7 Empirical versus Nominal Durations of CorporateBonds 157
Empirical Duration: Theory and Evidence 159
Segmentation in Credit Markets 173
Potential Stale Pricing and Its Effect on Hedge Ratios 173
Hedge Ratios Following Rating Changes: An Event Study Approach179
Using Empirical Duration in Portfolio Management Applications186
PART TWO Managing Corporate Bond Portfolios
CHAPTER 8 Hedging the Market Risk in Pairs Trades 197
Data and Hedging Simulation Methodology 199
Analysis of Hedging Results 200
Appendix: Hedging Pair-Wise Trades with Skill 208
CHAPTER 9 Positioning along the Credit Curve 213
Data and Methodology 214
Empirical Analysis 217
CHAPTER 10 The 2007-2009 Credit Crisis 229
Spread Behavior during the Credit Crisis 229
Applications of DTS 234
Advantages of DTS in Risk Model Construction 244
CHAPTER 11 A Framework for Diversification of Issuer Risk249
Downgrade Risk before and after the Credit Crisis 250
Using DTS to Set Position-Size Ratios 257
Comparing and Combining the Two Approaches to Issuer Limits260
CHAPTER 12 How Best to Capture the Spread Premium ofCorporate Bonds? 265
The Credit Spread Premium 266
Measuring the Credit Spread Premium for the IG Corporate Index266
Alternative Corporate Indexes 279
Capturing Spread Premium: Adopting an Alternative CorporateBenchmark 288
CHAPTER 13 Risk and Performance of Fallen Angels 295
Data and Methodology 298
Performance Dynamics around Rating Events 303
Fallen Angels as an Asset Class 319
CHAPTER 14 Obtaining Credit Exposure Using Cash and SyntheticReplication 337
Cash Credit Replication (TCX) 338
Synthetic Replication of Cash Indexes 351
Credit RBIs 358
References 367
Index 371

Über Autor(innen)

ARIK BEN-DOR, PhD, is a Director and Senior Analyst in theQuantitative Portfolio Strategy (QPS) Group at Barclays CapitalResearch. He joined the group in 2004 after completing a PhD infinance from the Kellogg School of Management. Ben-Dor haspublished extensively in the Journal of Portfolio Management,Journal of Fixed Income, and Journal of AlternativeInvestments on innovative approaches to managing risk in creditportfolios and on performance analysis and optimization of hedgefund portfolios.
LEV DYNKIN, PhD, is the founder and Global Head of theQuantitative Portfolio Strategy Group at Barclays Capital Research.Dynkin and the QPS group joined Barclays Capital in 2008 fromLehman Brothers where the group was a part of fixed income researchsince 1987--one of the longest tenures for an investor-focusedresearch group on Wall Street. QPS was rated first in QuantitativePortfolio Research by Institutional Investor magazine forall three years that this category was included in their fixedincome survey. Dynkin is a member of the editorial advisory boardof the Journal of Portfolio Management. He coauthored, withother members of QPS (including Hyman and Phelps), QuantitativeManagement of Bond Portfolios.
JAY HYMAN, PhD, is a Managing Director in theQuantitative Portfolio Strategy Group at Barclays Capital Research.He joined the group in 1991 and has since worked on issues of riskbudgeting, cost of investment constraints, improved measures ofrisk sensitivities, and optimal risk diversification for portfoliosspanning all fixed income asset classes. Hyman helped develop anumber of innovative measures that have been broadly adopted byportfolio managers and that have changed standard industrypractice.
BRUCE D. PHELPS, PhD, is a Managing Director in theQuantitative Portfolio Strategy Group at Barclays Capital Research,which he joined in 2000. Prior to that, he was an institutionalportfolio manager and head of fixed income at Ark Asset Management.Phelps was also senior economist at the Chicago Board of Trade,where he designed derivative contracts and electronic tradingsystems, and an international credit officer and foreign exchangetrader at Wells Fargo Bank. Phelps is a member of the editorialboard of the Financial Analysts Journal.