1 / 21

The Capital Markets: Portfolio Construction

New York University/ING Barings. The Capital Markets: Portfolio Construction. Prof. Ian Giddy New York University. Case Study: A Portfolio. Portfolio Return Computation. Portfolio Risk Computation. To Find the Risk-Return Possibilities, Vary the Proportions. E(r). A. B.

mariselai
Download Presentation

The Capital Markets: Portfolio Construction

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. New York University/ING Barings The Capital Markets: Portfolio Construction Prof. Ian Giddy New York University

  2. Case Study: A Portfolio

  3. Portfolio Return Computation

  4. Portfolio Risk Computation

  5. To Find the Risk-Return Possibilities, Vary the Proportions E(r) A B

  6. The Minimum-Variance Frontier of Risky Assets E(r) “Efficient frontier” Individual assets Global minimum-variance portfolio

  7. Risk Bond Risk Market Risk Credit Risk

  8. Bond Credit Ratings

  9. Credit Risk versus Market Risk

  10. CreditMetrics Methodology • Establishes the exposure profile of each obligor in a portfolio. • Computes the volatility in value of each instrument caused by possible upgrades, downgrades, and defaults. • Taking into account correlations between each of these events, it combines the volatility of the individual instruments to give an aggregate portfolio volatility.

  11. CreditMetrics Roadmap Exposures Value-at-risk due to credit Correlations Compute exposure profile of each asset Compute the volatility of value caused by upgrades/downgrades and defaults Compute correlations Portfolio value-at-risk due to credit

  12. Volatilities from “Transition Matrix”

  13. Construction of Volatility Across Credit Horizons

  14. Defaults and Recovery Rates

  15. A Picture of a BBB Bond’s Value Distribution

  16. Calculating Mean and Standard Deviation

  17. CreditMetrics www.creditmetrics.com

  18. www.giddy.org

  19. www.giddy.org Ian Giddy NYU Stern School of Business Tel 212-998-0332; Fax 212-995-4233 ian.giddy@nyu.edu http://www.giddy.org

More Related