Advanced bond portfolio management: best practices in by Frank J. Fabozzi, Lionel Martellini, Philippe Priaulet

By Frank J. Fabozzi, Lionel Martellini, Philippe Priaulet

So as to successfully hire portfolio suggestions that could keep an eye on rate of interest hazard and/or improve returns, you want to comprehend the forces that force bond markets, in addition to the valuation and possibility administration practices of those advanced securities. In complex Bond Portfolio administration , Frank Fabozzi, Lionel Martellini, and Philippe Priaulet have introduced jointly greater than thirty skilled bond marketplace execs that can assist you do exactly that.

Divided into six entire components, complicated Bond Portfolio administration will advisor you thru the state of the art concepts utilized in the research of bonds and bond portfolio administration. subject matters coated comprise:

  • General historical past info on fixed-income markets and bond portfolio thoughts
  • The layout of a method benchmark
  • Various elements of fixed-income modeling that may supply key components within the implementation of an effective portfolio and hazard administration strategy
  • Interest expense hazard and credits hazard administration
  • Risk elements excited by the administration of a world bond portfolio

packed with in-depth perception and professional recommendation, complicated Bond Portfolio administration is a beneficial source for someone concerned or attracted to this significant undefined.

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Extra resources for Advanced bond portfolio management: best practices in modeling and strategies

Sample text

Thus, they have no market return and their entire return is an alpha return. By being market neutral, they have separated market return (beta or duration) from alpha return. The second exception is an extension of market-neutral hedge funds and is discussed in the next section. Portable Alpha We have assumed that for stock and bond portfolios, the market return (due to beta or duration) is part of the same strategy as the alpha return. But market neutral hedge funds separate the market return from the alpha return by taking short and long positions in the markets via derivatives.

By contrast, over a 1-year horizon, the breakeven was 16 basis points. Short investment horizons imply thin breakevens. In turn, thin breakevens barely cover the cost of trading. Updating Spread Duration Math to Account for Trading Costs and Liquidity Up to this point, we have calculated the excess return without accounting for liquidity risk. In effect, we have assumed that (1) trading has no cost; (2) the bid-ask spread is zero; and (3) the only factors influencing the excess return on a bond swap are the spread and the market move.

4. 5. 6. Slope of the Treasury curve = YA,Treas − YB,Treas Slope of the spread curve = SA − SB Change in the Treasury curve = DA (∆YA,Treas − ∆YB,Treas) Change in the spread curve = DA (∆SA − ∆SB) Direction of Treasury rates = (DB − DA)∆YB,Treas Direction of spreads = (DB − DA)∆SB Four of these factors can move over the investment horizon: the change in the Treasury curve; the change in the spread curve; the direction of Treasuries; and the direction of spreads. 4 Therefore, a bond swap can be an imprecise and risky strategy to capture a wide yield spread when the swapped bonds have different durations.

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