Fixed Income Performance Attribution

Daul, Stéphane; Sharp, Nancy; Sørensen, Lars Qvigstad

doi:10.2139/ssrn.1619185

Cited by 2 publications

(18 citation statements)

References 9 publications

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“…Kuberek (1995) used the risk factors obtained from PCA to build his framework. This idea was extended by the work of Colin (2006), Zambruno (2008) and Daul et al (2016). The tradition of using returns for performance attribution complicates the problem.…”

Section: Performance Attributionmentioning

confidence: 99%

Optimization-Based Models for Measuring and Hedging Risk in Fixed Income Markets

Hagenbjörk

2020

Linköping Studies in Science and Technology. Dissertations

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The global fixed income market is an enormous financial market whose value by far exceeds that of the public stock markets. The interbank market consists of interest rate derivatives, whose primary purpose is to manage interest rate risk. The credit market primarily consists of the bond market, which links investors to companies, institutions, and governments with borrowing needs. This dissertation takes an optimization perspective upon modeling both these areas of the fixed-income market. Legislators on the national markets require financial actors to value their financial assets in accordance with market prices. Thus, prices of many assets, which are not publicly traded, must be determined mathematically. The financial quantities needed for pricing are not directly observable but must be measured through solving inverse optimization problems. These measurements are based on the available market prices, which are observed with various degrees of measurement noise. For the interbank market, the relevant financial quantities consist of term structures of interest rates, which are curves displaying the market rates for different maturities. For the bond market, credit risk is an additional factor that can be modeled through default intensity curves and term structures of recovery rates in case of default. By formulating suitable optimization models, the different underlying financial quantities can be measured in accordance with observable market prices, while conditions for economic realism are imposed.

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Section: Performance Attributionmentioning

confidence: 99%

Optimization-Based Models for Measuring and Hedging Risk in Fixed Income Markets

Hagenbjörk

2020

Linköping Studies in Science and Technology. Dissertations

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show abstract

“…Some authors further split this term into accrued interest over the period and the roll-down effect caused by the instrument "rolling down" the slope of the yield curve. For a further discussion of the roll-down effect, see the work of Ilmanen (2011), Bolder (2016 and Daul et al (2016).…”

Section: Theorymentioning

confidence: 99%

“…Kuberek (1995) incorporated this idea into his framework, using duration with respect to these three factors. This idea was extended by the work of Colin (2006), Zambruno (2008) and Daul et al (2016).…”

Section: Introductionmentioning

confidence: 99%

“…The foundation of the framework is built on a second-order Taylor approximation of the price sensitivities to the risk factors. While performing a Taylor approximation of the appropriate risk factors has previously been carried out by Colin (2006), Zambruno (2008), Daul et al (2016), we present a much more accurate, detailed and residualfree decomposition in monetary terms. This follows from introducing two additional factors.…”

Section: Introductionmentioning

confidence: 99%

“…The reason for choosing the fixed income market is that we are able to identify high-quality systematic risk factors for interest rate risk (Blomvall, 2017). Another reason is that this allows us to mimic the models by Zambruno (2008) and Daul et al (2016) within our framework, and thereby compare our results. 1 We focus on plain money market interest rate derivatives instead of bonds since the additional risk factors arising from credit risk and possible liquidity risk are harder to measure with the desired quality.…”

Section: Introductionmentioning

confidence: 99%

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