On the diversification of fixed income assets

Artikel

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Risks ; ISSN: 2227-9091 ; Volume: 10 ; Year: 2022 ; Issue: 2 ; Pages: 1-21 ; Basel: MDPI

Classification and Topics

• Classification: Wirtschaft
• Subject: diversification ; interest rate risk ; credit risk ; asset-liability management ; corporate bonds ; fixed income

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Le Courtois, Olivier
• Event: Veröffentlichung
• (who): MDPI
• (where): Basel
• (when): 2022

Further information

• DOI: doi:10.3390/risks10020031
• Handle: http://hdl.handle.net/10419/258342
• Last update: 10.03.2025, 11:42 AM CET