|
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)
|
