On the Dynamics of EMU Bond Portfolios: <i>Is the Diversification of Risk Factors Driving to Convergence of Fund Exposure?</i>

Konstantinov, Gueorgui S.

doi:10.3905/joi.2017.26.2.091

Cited by 2 publications

(1 citation statement)

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“…The paper of Wu and Wu (2018), which puts forward the interest of partially diversifying a portfolio of credit default swaps, is equally interesting. See the work of Kurtz et al (2018), as well, which deals with sectorial concentration, or the paper of Konstantinov (2017), which deals with factorial concentration. Finally, take a look at the paper of Heckel et al (2020), which examines the use of factor models in a fixed income context.…”

Section: Introductionmentioning

confidence: 99%

On the Diversification of Fixed Income Assets

Courtois

2022

Risks

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This article introduces a new approach for dealing with the diversification/concentration risk of fixed income assets. Because Government bonds, corporate bonds, and mortgage backed securities constitute a large proportion of the assets of institutional investors in most countries, it is important to be able to determine the number of lines/issuers of such assets, not only for portfolio management but also for risk management purposes. The approach that I introduce shows the dependence of the critical number of lines of fixed income assets on the main interest rate risk and credit risk drivers. Specifically, I examine the importance of volatility risk, force of mean reversion, default risk, recovery risk, and default dependence risk on the critical number of assets in a fixed income portfolio. The methodology in this paper relies on the use of the coefficient of variation for the computation of the critical number of credit-sensitive securities in a fixed income portfolio. To the best of my knowledge, this paper is the first to develop such an approach.

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