The primary risk for portfolio managers who manage corporate bond portfolios is credit risk — the credit-worthiness of the corporations that back the bonds. The challenge is to hold bonds that are high credit while simultaneously managing the risk of underperformance against a benchmark. But there is little guidance in investment literature on how to create a portfolio that will replicate or out-perform a corporate bond benchmark and to assess the relative risk of the portfolio held. Managing Credit Risk in Corporate Bond Portfolios fills the information gap. Beginning with an introduction to the corporate bond market, the author shows the similarities and differences between corporate and government bond portfolios from a trading and risk management perspective. Yield curve risk, required for computing the market risk exposure of a bond portfolio, is also reviewed. Then, the focus moves to modeling credit risk arising from insolvency and migration risk at the issuer level. Ramaswamy will show readers how to quantify portfolio credit risk and to compute default and loss correlation. Finally, marginal risk measures within the portfolio management context and relevant measures to quantify the credit risk of the portfolio relative to the benchmark will be covered.
Book Details:
- Author: Srichander Ramaswamy
- ISBN: 9780470353004
- Year Published: 2004
- Pages: 288
- BISAC: BUS001040, BUSINESS & ECONOMICS/Accounting / Managerial
About the Book and Topic:
The primary risk for portfolio managers who manage corporate bond portfolios is credit risk — the credit-worthiness of the corporations that back the bonds. The challenge is to hold bonds that are high credit while simultaneously managing the risk of underperformance against a benchmark. But there is little guidance in investment literature on how to create a portfolio that will replicate or out-perform a corporate bond benchmark and to assess the relative risk of the portfolio held. Managing Credit Risk in Corporate Bond Portfolios fills the information gap. Beginning with an introduction to the corporate bond market, the author shows the similarities and differences between corporate and government bond portfolios from a trading and risk management perspective. Yield curve risk, required for computing the market risk exposure of a bond portfolio, is also reviewed. Then, the focus moves to modeling credit risk arising from insolvency and migration risk at the issuer level. Ramaswamy will show readers how to quantify portfolio credit risk and to compute default and loss correlation. Finally, marginal risk measures within the portfolio management context and relevant measures to quantify the credit risk of the portfolio relative to the benchmark will be covered.
One of the only books to provide quantitative tools to measure risk in the corporate bond portfolio and to select portfolios that replicate benchmarks. Managing Credit Risk in Corporate Bond Portfolios provides much needed information on the key hot areas of credit risk by offering a full chapter on developing quantitative tools for choosing optimal bond portfolios and for constructing portfolios that replicate risk-return characteristics of a given corporate benchmark, discussing Monte Carlo simulation techniques to evaluate downside risk of portfolios will also be covered, and analyzing the credit risks of structured products such as CDOs and TRACERs by example.
CREDIT RISK CONTINUES TO BE ONE OF THE HOTTEST AREAS OF INSTITUTIONAL INVESTMENT. And it is particularly so in the area of corporate bond portfolios. COMPREHENSIVE GUIDE TO MANAGING RISK IN THE $3.4 TRILLION CORPORATE BOND MARKET. Managing credit risk is the biggest challenge for portfolio managers. Presents real world methods to measure credit risk. PROVIDES METHODS FOR MEASURING RELATIVE PERFORMANCE. Little material exists on measuring corporate bond portfolio risk against a benchmark. This is the first book to present optimization techniques to construct and rebalance corporate bond portfolios.
About the Author
Srichander Ramaswamy is head of investment analysis at the Bank for International Settlements (BIS) in Basel, Switzerland and adjunct professor of banking and finance, University of Lausanne. Previously, he was a financial engineer with Credit Suisse in Zurich. Dr. Ramaswamy is a contributor to The Journal of Portfolio Management, and other professional journals. He holds a Ph.D. in Aerospace Engineering from the University of Cincinnati.