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Risk Factor Analysis and Portfolio Immunization in the Corporate Bond Market

Author

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  • Marida Bertocchi
  • Rosella Giacometti
  • Stavros A. Zenios

Abstract

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.

Suggested Citation

  • 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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    File URL: http://fic.wharton.upenn.edu/fic/papers/00/0040.pdf
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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. Antoine Kopp & Rebecca Westphal & Didier Sornette, 2022. "Agent-based model generating stylized facts of fixed income markets," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 17(4), pages 947-992, October.
    5. 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.
    6. Sergio Ortobelli & Sebastiano Vitali & Marco Cassader & Tomáš Tichý, 2018. "Portfolio selection strategy for fixed income markets with immunization on average," Annals of Operations Research, Springer, vol. 260(1), pages 395-415, January.
    7. Mr. Iryna V. Ivaschenko & Mr. Jorge A Chan-Lau, 2001. "Corporate Bond Risk and Real Activity: An Empirical Analysis of Yield Spreads and Their Systematic Components," IMF Working Papers 2001/158, International Monetary Fund.
    8. 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.
    9. Fernando Rubio, 2004. "Eficiencia Simple Del Mercado De Renta Fija En Chile," Finance 0405009, University Library of Munich, Germany.

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