Multi factor Risk Metrics and Hedges
About the Lecture
The lecture Multi factor Risk Metrics and Hedges by Edu Pristine is from the course Archiv - Financial Markets and Products. It contains the following chapters:
- Weakness of Single Factor Approach
- Key Rates
- Empirical Approach to Risk Metrics and Hedges - DV-01
- Regression Hedge
- Principal Component Analysis
Author of lecture Multi factor Risk Metrics and Hedges
Edu Pristine
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Excerpts from the accompanying material
... all the future rate changes are driven by single factor. The same change in interest rate is assumed for the entire yie ld curve ...
... Partial ‘01 is used to measure the risk of the bond or swap portfolio in terms of liquid money markets and swap instruments Forward ’01 is used ...
... is a approach to nonparallel shift in the yield curve This technique allows to determine changes in all the ...
... Rate ‘01 = (-1/10,000) * (Change in Bond Value/0.01%) Key rate duration provides the approximate percentage change in the value ...
... created in response to key rate shifts .This can be done by equating individual key rate exposures next to key rate shifts ...
... fall by the same basis points . The main drawback of DV-01 neutral hedge is that this ...
... nominal yields. Real yields are the independent variable and nominal yield is the dependent variable . This technique takes into consideration the change in the value of the real rate with change ...
... components needs to described. Principal components are set up in such a manner that sum of th e variances of these principal components are same ...
... In barbell strategy, investor uses the bonds of short and long maturities and does not invest in ...
... In practice, change in short term interest rate might be different from the change in long term interest rate. Same hedging instrument ...
... on the yield curve. These are usually 2,5,10 and 30 year rates. Key rate exposures hedge risk by using rates from a small number of available liquid ...
... rates due to the changes in key rates. Choice has to be made as to which key rates shifts ...
... Key Rate ‘01 measures the dollar change in the value of the bond for every basis point shift in the key rate. ...
... the overall key rate exposure for that particular key rate change. The above step indicates either a long position or a short ...
... Neutral hedge assumes that yield on the bond and the yield on the hedging instrument risk ...
... value of nominal rate while calculating the face value of the hedge. Face value of regression based hedge. ...
