Identifier

etd-050213-112946

Abstract

This project focuses on risk analysis of corporate bond portfolios. We separate the total risk of the portfolio into three parts, which are market risk, credit risk and liquidity risk. The market risk component is quantified by value-at-risk (VaR) determined by change in yield to maturity of the bond portfolio. For the credit risk component, we calculate default probabilities and losses in the event of default and then compute credit VaR. Next, we define a factor called basis which is the difference between the Credit Default Swap (CDS) spread and its corresponding corporate bond yield spread (z-spread or OAS). We quantify the liquidity risk by using the basis. In addition, we also introduce a Fama-French multi-factor model to analyze factor significance to the corporate bond portfolio.

Publisher

Worcester Polytechnic Institute

Degree Name

MS

Department

Mathematical Sciences

Project Type

Thesis

Date Accepted

2013-05-02

Accessibility

Unrestricted

Subjects

market risk, credit risk, liquidity risk, value at risk, Fama-French multi-factor model

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