Group 1 (task 80%, relationship 20%) meets the requirements of the task, although some partners may feel left out. The “doers” in the group take over and do it. Not everyone in the group feels ownership of the outcome, and not everyone feels good about the process used in accomplishing the task. A typical comment [...]
Because of the different approaches towards risk measurement the composition of the efficient portfolios should differ significantly. Asset classes with more negatively skewed or leptokurtic return distributions are expected to receive lower weightings in the shortfall risk and the Corning–Fisher framework. We will focus on the composition and risk/return profile of three portfolios with very [...]
The macroeconomic analysis of corporate bond markets typically is based on aggregate measures of growth, employment, interest rates and monetary policy. The impact of changes of these variables on corporate revenues and cash flows and thus on credit risk depends on financial and operating leverage and on the ratio of earnings or cash flows to [...]
Strategic asset allocation is the first step in the investment process for credit portfolios. At this stage, all analyses are from a top-down perspective. In other words, the medium to long-term outlook for credit quality and the future direction of credit spreads is assessed on an aggregate basis, that is, for the credit market as [...]
The third and last type of quantitative credit models that we want to mention briefly are factor models. In contrast to both the structural and reduced-form models, the factor model does not attempt to model default. Rather, linear regression is used to assess the relative richness or cheapness of individual credits. The factor model attributes [...]