Active Fixed Income and Credit Management by F. Hagenstein, Tim Bangemann PDF

By F. Hagenstein, Tim Bangemann

ISBN-10: 0230510493

ISBN-13: 9780230510494

ISBN-10: 1349432199

ISBN-13: 9781349432196

The authors give you the reader with an in depth instrument set for energetic and winning administration of fastened source of revenue portfolios in addition to for credit. the point of interest of debate is on quantitative and, for credit, qualitative tools of portfolio administration. those suggestions could be hired for portfolio diversification and so as to outperform the benchmark. equipment acceptable for various chance components - length, yield curve, foundation, volatility and credits administration - are illustrated intimately utilizing a top-down and bottom-up strategy. numerous examples are awarded to teach the sensible relevance of the theoretical versions and method.

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Sample text

The interesting part of this chart is the significant fit up to 1998, clearly indicating that the Bundesbank’s monetary policy reacted to German weakness or strength. From 1999, the ECB has reacted to Euro-11 data, and for this reason the fit cannot be expected to be as good as pre-EMU. It follows, however, that ECB monetary policy at time of writing (October 2001) is too tight for Germany. The flattening or steepening and the changes in the convexity or concavity of yield curves are examined here using different examples.

1 Differences between strips and conventional bonds The strip market in Europe is still relatively young. In Germany it has existed since 4 July 1997, while in France bond strips were introduced in 1991. STRIP, an acronym, stands for Separately Traded Receipts of Income and Principal. Stripping of bonds means the separation of the coupon and nominal payments of the bond into its individual components. The coupon strip is often called Interest Only (IO), and the final payment of the nominal is the principal strip or Principal Only (PO).

The yield of the body bond is known from market prices, but the yield of the portfolio consisting of the two wing bonds is not easily determined. Theoretically the yield of a portfolio equals the internal rate of return of its individual cash flows. This is a complex iterative calculation, so in practice two methods are used as approximations: ■ proceeds-weighted yield pick-up method ■ duration-weighted yield pick-up method. The proceeds-weighted yield pick-up method calculates the yield of the portfolio with the two wing bonds by weighting their cash components.

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Active Fixed Income and Credit Management by F. Hagenstein, Tim Bangemann

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