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On Generating Scenarios For Bond Portfolios

Author

Listed:
  • Jozsef Abaffy
  • Marida Bertocchi
  • Jitka Dupačová
  • Vittorio Moriggia

Abstract

Investments recommendations that result from scenario-based bond portfolio management models depend on the input scenarios which can be obtained in many different ways. Various aspects which influence the choice of representative scenarios for bond portfolio management, e.g., the sources of uncertainties and the level of the available information, will be discussed. The main factor which drives the returns, prices and other characteristics of bonds is the evolution of (short-term) interest rates. This is the main data process which enters the coefficients of the bond portfolio management models. We shall survey various discrete and continuous time interest rate models including their extensions to more dimensions and compare them from the point of view of their calibration, numerical tractability and properties of the obtained scenarios. Numerical experience based on data from the Italian market will be reported.

Suggested Citation

  • Jozsef Abaffy & Marida Bertocchi & Jitka Dupačová & Vittorio Moriggia, 2000. "On Generating Scenarios For Bond Portfolios," Bulletin of the Czech Econometric Society, The Czech Econometric Society, vol. 7(11).
  • Handle: RePEc:czx:journl:v:7:y:2000:i:11:id:82
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    File URL: http://ces.utia.cas.cz/bulletin/index.php/bulletin/article/view/82
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    References listed on IDEAS

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    5. Jon Frye, 2000. "Depressing recoveries," Emerging Issues, Federal Reserve Bank of Chicago, issue Oct.
    6. Stefano Caselli & Stefano Gatti & Francesca Querci, 2008. "The Sensitivity of the Loss Given Default Rate to Systematic Risk: New Empirical Evidence on Bank Loans," Journal of Financial Services Research, Springer;Western Finance Association, vol. 34(1), pages 1-34, August.
    7. Seidler, Jakub & Horvath, Roman & Jakubík, Petr, 2009. "Estimating expected loss given default in an emerging market: the case of Czech Republic," Journal of Financial Transformation, Capco Institute, vol. 27, pages 103-107.
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    Cited by:

    1. Abaffy, J. & Bertocchi, M. & Dupacova, J. & Moriggia, V. & Consigli, G., 2007. "Pricing nondiversifiable credit risk in the corporate Eurobond market," Journal of Banking & Finance, Elsevier, vol. 31(8), pages 2233-2263, August.

    More about this item

    Keywords

    interest rate scenarios; discrete time models; continuous time models mean reversion; numerical comparisons;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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