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Bond portfolio management
Jamal Munshi, Sonoma State Univesity, 1992
All rights reserved
PASSIVE STRATEGIES
objective: minimize risk of meeting future funding needs
methods
define universe of securities
define sources of cash flow uncertainties
design portfolio to generate funding cash flows
strategies
dedication
immunization
horizon matching
contingent immunization
indexation
portfolio insurance and floors
use of derivatives
hedge to reduce risk
swaps, options, forwards, futures
ACTIVE STRATEGIES
objective:
re-evaluate/forecast/anticipate
profit from this information
high risk high return
forecasts:
credit risk pricing
credit risk vs maturity
anticipated rating change
parallel shifts in the yield curve
slope changes in the yield curve
junk bonds
options and futures
credit and credit spread derivatives
strategy: maximize returns from a given anticipated change in price by minimizing investment needed to realize the dollar gains
leveraging with derivative contracts
UNIVERSE OF SECURITIES
treasuries
corporate: credit risk
agency: prepayment risk
muni: tax free
junk (high yield)