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Integrated Market and Credit Risk Management of Fixed Income Portfolios

Author

Listed:
  • Roger Walder

    (University of Lausanne, FAME and Banque Cantonale Vaudoise)

Abstract

In this paper, we present an integrated framework for the measurement and management of market and credit risk in fixed income portfolios. The framework based on the Mark-to-Future approach promoted by Algorithmics is used to analyze the contribution of market and credit risk to portfolio risk and determine the possible benefits of integration. The bonds and derivatives in the portfolio are priced using an affine term structure model where default risk is modeled with the intensity approach. The economic analysis of the market and credit risk integration delivers useful implications for the management of fixed income portfolios and the determination of regulatory capital requirements.

Suggested Citation

  • Roger Walder, 2002. "Integrated Market and Credit Risk Management of Fixed Income Portfolios," FAME Research Paper Series rp62, International Center for Financial Asset Management and Engineering.
    • Handle: RePEc:fam:rpseri:rp62
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    File URL: http://www.fame.ch/library/EN/RP62.pdf
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    Citations

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    Cited by:

    1. Marco Sorge, 2004. "Stress-testing financial systems: an overview of current methodologies," BIS Working Papers 165, Bank for International Settlements.
    2. Linda Allen & Anthony Saunders, 2004. "Incorporating Systemic Influences Into Risk Measurements: A Survey of the Literature," Journal of Financial Services Research, Springer;Western Finance Association, vol. 26(2), pages 161-191, October.
    3. Sorge, Marco & Virolainen, Kimmo, 2006. "A comparative analysis of macro stress-testing methodologies with application to Finland," Journal of Financial Stability, Elsevier, vol. 2(2), pages 113-151, June.

    More about this item

    Keywords

    Risk Management; Credit Risk Modeling; Default Correlation;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G2 - Financial Economics - - Financial Institutions and Services

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