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Risk Factor Analysis and Portfolio Immunization in the Corporate Bond Market


  • Marida Bertocchi
  • Rosella Giacometti
  • Stavros A. Zenios


In this paper we develop a multi-factor model for the yields of corporate bonds. The model allows the analysis of factors which influence the changes in the term structure of corporate bonds. More than 98% of the variability in the corporate bond market is captured by the model, which is then used to develop credit risk immunization strategies. Empirical results are given for the U.S. market using data for the period 1992-1999.

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  • Marida Bertocchi & Rosella Giacometti & Stavros A. Zenios, 2000. "Risk Factor Analysis and Portfolio Immunization in the Corporate Bond Market," Center for Financial Institutions Working Papers 00-40, Wharton School Center for Financial Institutions, University of Pennsylvania.
  • Handle: RePEc:wop:pennin:00-40

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    References listed on IDEAS

    1. Robert A. Jarrow & David Lando & Stuart M. Turnbull, 2008. "A Markov Model for the Term Structure of Credit Risk Spreads," World Scientific Book Chapters,in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 18, pages 411-453 World Scientific Publishing Co. Pte. Ltd..
    2. Pierre Collin-Dufresne & Robert S. Goldstein & Spencer J. Martin, 1999. "The Determinants of Credit Spreads Changes," GSIA Working Papers 2000-E13, Carnegie Mellon University, Tepper School of Business.
    3. Edward J. Elton & Martin J. Gruber & Deepak Agrawal & Christopher Mann, 1999. "Explaining the Rate Spread on Corporate Bonds," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-082, New York University, Leonard N. Stern School of Business-.
    4. Norbert Jobst & Stavros A. Zenios, 2001. "The Tail that Wags the Dog: Integrating Credit Risk in Asset Portfolios," Center for Financial Institutions Working Papers 01-24, Wharton School Center for Financial Institutions, University of Pennsylvania.
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    Cited by:

    1. Eliseo Navarro & Juan M. Nave, 1997. "A two-factor duration model for interest rate risk management," Investigaciones Economicas, Fundación SEPI, vol. 21(1), pages 55-74, January.
    2. Ferstl, Robert & Weissensteiner, Alex, 2011. "Asset-liability management under time-varying investment opportunities," Journal of Banking & Finance, Elsevier, vol. 35(1), pages 182-192, January.
    3. Roncoroni, Andrea & Galluccio, Stefano & Guiotto, Paolo, 2010. "Shape factors and cross-sectional risk," Journal of Economic Dynamics and Control, Elsevier, vol. 34(11), pages 2320-2340, November.
    4. Roberta Fiori & Simonetta Iannotti, 2006. "Scenario Based Principal Component Value-at-Risk: an Application to Italian Banks' Interest Rate Risk Exposure," Temi di discussione (Economic working papers) 602, Bank of Italy, Economic Research and International Relations Area.
    5. Iryna V. Ivaschenko & Jorge A Chan-Lau, 2001. "Corporate Bond Risk and Real Activity; An Empirical Analysis of Yield Spreads and Their Systematic Components," IMF Working Papers 01/158, International Monetary Fund.
    6. repec:spr:annopr:v:260:y:2018:i:1:d:10.1007_s10479-016-2182-8 is not listed on IDEAS
    7. Núñez-Mora, José A. & Martínez Reyes, Carlos A., 2012. "Nonparametric Specification Testing for Continuous Time Models for Interest Rates in Mexico," Panorama Económico, Escuela Superior de Economía, Instituto Politécnico Nacional, vol. 0(14), pages 7-27, primer se.
    8. Fernando Rubio, 2004. "Eficiencia Simple Del Mercado De Renta Fija En Chile," Finance 0405009, EconWPA.

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