Desirable portfolios in fixed income markets: Application to credit risk premiums

Artikel

An arbitrage portfolio provides a cash flow that can never be negative at zero cost. We define the weaker concept of a 'desirable portfolio' delivering cash flows with negative risk at zero cost. Although these are not completely risk-free investments and subject to the risk measure used, they can provide attractive investment opportunities for investors. We investigate in detail the theoretical aspects of this portfolio selection procedure and the existence of such opportunities in fixed income markets. Then, we present two applications of the theory: one in analyzing market integration problem and the other in gauging the credit quality of defaultable bonds in a portfolio. We also discuss the model calibration and provide some numerical illustrations.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Risks ; ISSN: 2227-9091 ; Volume: 6 ; Year: 2018 ; Issue: 1 ; Pages: 1-21 ; Basel: MDPI

Classification and Topics

• Classification: Wirtschaft
• Subject: minimization of risk measures ; desirable portfolios ; risk statistics ; market integration ; credit premium estimation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Garrido, José ; Okhrati, Ramin
• Event: Veröffentlichung
• (who): MDPI
• (where): Basel
• (when): 2018

Further information

• DOI: doi:10.3390/risks6010023
• Handle: http://hdl.handle.net/10419/195814
• Last update: 10.03.2025, 11:44 AM CET