Managing Credit Risk in a Corporate Bond Portfolio

Integrating market and credit risk: A simulation and optimisation perspective

“…According to Ramaswamy (2002) diversification of credit risk is much more difficult than that market risk, which is particularly true in case of the risk of overexposure to a particular issuer or industry (concentration risk). To avoid this, the traditional approach has been to include a large number of issuers in the portfolio.…”

“…Some of these methods build on the mean-variance analysis of Markowitz where the mean and variance refer to the actual loss distribution of the portfolio (e.g. Kealhofer, 1998;Ramaswamy, 2002, or Dynkin et al, 2001. For a general discussion of portfolio construction using alternative risk measures the readers are referred to Mitra et al (2003).…”

Diversifying Market and Default Risk in High Grade Sovereign Bond Portfolios

“…where P(d i ) denotes the default probability for issuer i, as shown by Ramaswamy (2004), among others. For example, the default correlation for BBB rated bonds would be on the order of 0.07 and 0.13 for 0.3 and 0.5 Gaussian copula parameters.…”

“…From the credit risk management perspective, the bulk of the literature discusses the risk of corporate bonds -see a broad review intended for risk practitioners by Ramaswamy (2004) among many others. Duffie and Singleton (2003) discuss credit risk from both the risk management and the asset pricing point of view, and they address both corporate as well as sovereign credit risk in their book.…”

Risk‐Based Capital and Credit Insurance Portfolios

“…1 1 Ramaswamy (2002): “Managing credit risk in a bond portfolio is usually more difficult than managing market risk. The reason is that credit risk is a low‐probability default event that leads to highly skewed return distributions…To a certain extent, managing credit risk is similar to managing event risk when pricing an insurance premium.” …”