Defining, Estimating and Using Credit Term Structures. Part 2: Consistent Risk Measures

Berd, Arthur M.; Mashal, Roy; Wang, Peili

doi:10.2139/ssrn.736883

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Defining, Estimating and Using Credit Term Structures. Part 2: Consistent Risk Measures

17 Pages Posted: 7 Jun 2005

See all articles by Arthur M. Berd

Arthur M. Berd

General Quantitative, LLC; The Journal of Investment Strategies

Peili Wang

Lehman Brothers, New York

Date Written: November 2004

Abstract

In the second part of our series, we suggest new definitions of credit bond duration and convexity that remain consistent across all levels of credit quality including deeply distressed bonds and introduce additional risk measures that are consistent with the survival-based valuation framework. We then show how to use these risk measures for the construction of market neutral portfolios.

(see part 1 at: http://ssrn.com/abstract=736864 & part 3 at: http://ssrn.com/abstract=736884)

Keywords: Credit risk, credit bond, recovery risk, portfolio management, relative value, risk management

JEL Classification: G10, G11, G12, G13

Suggested Citation: Suggested Citation

Berd, Arthur M. and Mashal, Roy and Wang, Peili, Defining, Estimating and Using Credit Term Structures. Part 2: Consistent Risk Measures (November 2004). Available at SSRN: https://ssrn.com/abstract=736883 or http://dx.doi.org/10.2139/ssrn.736883