Document Type thesis Author Name Zhao, Yunfeng URN etd-050213-112946 Title Risk Analysis for Corporate Bond Portfolios Degree MS Department Mathematical Sciences Advisors Marcel Blais, Advisor Keywords market risk credit risk liquidity risk value at risk Fama-French multi-factor model Date of Presentation/Defense 2013-05-02 Availability unrestricted
This project focuses on risk analysis of corporate bond portfolios. We separate the total risk of the portfolio into three parts, which are market risk, credit risk and liquidity risk. The market risk component is quantified by value-at-risk (VaR) determined by change in yield to maturity of the bond portfolio. For the credit risk component, we calculate default probabilities and losses in the event of default and then compute credit VaR. Next, we define a factor called basis which is the difference between the Credit Default Swap (CDS) spread and its corresponding corporate bond yield spread (z-spread or OAS). We quantify the liquidity risk by using the basis. In addition, we also introduce a Fama-French multi-factor model to analyze factor significance to the corporate bond portfolio.
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