Multi-Factor Risk Measurement and Hedging of Bond Portfolios

cdbsmith

Member
Hi David,

First, I have no practical experience with bonds or bond portfolios. So, in reading Tuckman Chapter 5 (Multi-factor Risk Metrics and Hedges), I am totally confused on the portion where he explains how to measure and hedge against key rate exposures. I am referring to pages 133 & 134 of the "Valuations" study notes doc. The pages respond to AIM statement "Calculate the key rate exposures for a given security, and compute the appropriate hedging positions given a specific key rate exposure profile."

For example, I am having trouble understanding how to determine which values to hedge and what the numerators and denominators should be.

Can you help clarify this for me?

Thanks,

Charles
 

cdbsmith

Member
David,

I have attached the specific pages that I am having trouble with.

Thanks,

Charles
 

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  • Multi-factor risk metrics and hedges.pdf
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David Harper CFA FRM

David Harper CFA FRM
Staff member
Subscriber
Hi Charles, okay thanks (the notes are summaries of the assigned Tuckman, so I'll assume the underlying Tuckman chapter is similarly challenging? I think it is ...). I will get to your question as soon as I can, it will be useful anyways (to provide more beef to the notes here), but i won't be able to immediately, FYI: we have more videos still to produce before the exam next month and the support burden is currently heavy (and your sort of question for general clarification is time-consuming). No worries, I think your question is good! I assume you've seen the associated practice questions which sort of tease out this topic with some illustrated example(s)? Thanks,
 

cdbsmith

Member
Thanks David!

I realize my question is pretty general, but that's only because I'm too confused to be more specific. I certainly appreciate your current workload with the exam right "around the corner".

I haven't looked at the related practice questions, but I will do that now. Maybe that will help to clarify some of my concerns. Otherwise, I will await your response.

Thanks again,

Charles
 
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