Garrido, J;
Okhrati, R;
(2018)
Desirable portfolios in fixed income markets: Application to credit risk premiums.
Risks
, 6
(1)
, Article 23. 10.3390/risks6010023.
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Abstract
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.
| Type: | Article |
|---|---|
| Title: | Desirable portfolios in fixed income markets: Application to credit risk premiums |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.3390/risks6010023 |
| Publisher version: | https://doi.org/10.3390/risks6010023 |
| Language: | English |
| Additional information: | This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (http://creativecommons.org/licenses/by/4.0/) |
| Keywords: | minimization of risk measures; desirable portfolios; risk statistics; market integration; credit premium estimation |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > Dept of Civil, Environ and Geomatic Eng |
| URI: | https://discovery-pp.ucl.ac.uk/id/eprint/10081494 |
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