Quantitative Credit Portfolio Management / Frank J. Fabozzi Series (PDF)

Foreword xvii Introduction xix Notes on Terminology xxvii PART ONE Measuring the Market Risks of Corporate Bonds CHAPTER 1 Measuring Spread Sensitivity of Corporate Bonds 3 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 Euro Treasuries 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 Bonds 81 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 Risk 133 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 Expected Default 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 Corporate Bonds 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 Approach 179 Using Empirical Duration in Portfolio Management Applications 186 PART TWO Managing Corporate Bond Portfolios

ARIK BEN DOR, PHD, is a Director and Senior Analyst in the Quantitative Portfolio Strategy (QPS) Group at Barclays Capital Research. He joined the group in 2004 after completing a PhD in finance from the Kellogg School of Management. Ben Dor has published extensively in the Journal of Portfolio Management, Journal of Fixed Income, and Journal of Alternative Investments.

LEV DYNKIN, PHD, is the founder and Global Head of the Quantitative Portfolio Strategy Group at Barclays Capital Research. Dynkin and the QPS group joined Barclays Capital in 2008 from Lehman Brothers where the group was a part of fixed income research since 1987--one of the longest tenures for an investor-focused research group on Wall Street.

JAY HYMAN, PHD, is a Managing Director in the Quantitative Portfolio Strategy Group at Barclays Capital Research. He joined the group in 1991 and has since worked on issues of risk budgeting, cost of investment constraints, improved measures of risk sensitivities, and optimal risk diversification for portfolios spanning all fixed income asset classes. Hyman helped develop a number of innovative measures that have been broadly adopted by portfolio managers and that have changed standard industry practice.

BRUCE D. PHELPS, PHD, is a Managing Director in the Quantitative Portfolio Strategy Group at Barclays Capital Research, which he joined in 2000. Prior to that, he was an institutional portfolio 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 trading systems, and an international credit officer and foreign exchange trader at Wells Fargo Bank. Phelps is a member of the editorial board of the Financial Analysts Journal.

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