From the Back Cover
Created by members of the Quantitative Portfolio Strategy Group at Barclays Capital Research--a recognized authority in this field--Quantitative Credit Portfolio Management contains new insights that credit market practitioners, from portfolio managers to research analysts, will find useful, practical, and easy to apply.
Written in an intuitive yet quantitatively rigorous style, this timely publication opens with a detailed look at new measures of spread risk, liquidity risk, and Treasury curve risk of credit securities. It presents strong empirical evidence of the benefits these measures offer to portfolio managers compared with current standard industry methods. From there, it moves on to examining applications of these risk measures to portfolio construction and management. The authors also examine the best ways of capturing more of the spread premium in credit portfolios.
All along the way, the authors maintain a sharp focus on the "out-of-sample" predictive power of their research results and their practical implications, with special attention given to the 2007-2009 credit crisis and the subsequent European sovereign crisis.
In this book, the authors:
- Build a case for a Duration Times Spread (DTS) approach to forecasting spread changes and managing risk in credit portfolios based on their finding that spread volatility is linearly related to spread levels
- Introduce a security-level numeric measure of transaction costs--Liquidity Cost Scores (LCS)--which enables investors to quantify the liquidity component of credit spreads and construct portfolios with desired liquidity characteristics
- Demonstrate an approach to optimal diversification of issuer-specific risk in credit portfolios
- Suggest downgrade-tolerant credit portfolios as a way to avoid discarding credit spread premium with the forced liquidation of "fallen angels" as they get dropped from investment grade indices
- Examine "fallen angels" themselves, as a separate asset class, with superior risk and return characteristics
ARIK BEN DOR, PHD, is a Director and Senior Analyst in the Quantitative Portfolio Strategy (QPS) Group at Barclays Capital Research. He joined the group in 2004 after completing a PhD in finance from the Kellogg School of Management. Ben Dor has published extensively in the Journal of Portfolio Management, Journal of Fixed Income, and Journal of Alternative Investments.
LEV DYNKIN, PHD, is the founder and Global Head of the Quantitative Portfolio Strategy Group at Barclays Capital Research. Dynkin and the QPS group joined Barclays Capital in 2008 from Lehman Brothers where the group was a part of fixed income research since 1987--one of the longest tenures for an investor-focused research group on Wall Street.
JAY HYMAN, PHD, is a Managing Director in the Quantitative Portfolio Strategy Group at Barclays Capital Research. He joined the group in 1991 and has since worked on issues of risk budgeting, cost of investment constraints, improved measures of risk sensitivities, and optimal risk diversification for portfolios spanning all fixed income asset classes. Hyman helped develop a number of innovative measures that have been broadly adopted by portfolio managers and that have changed standard industry practice.
BRUCE D. PHELPS, PHD, is a Managing Director in the Quantitative Portfolio Strategy Group at Barclays Capital Research, which he joined in 2000. Prior to that, he was an institutional portfolio manager and head of fixed income at Ark Asset Management. Phelps was also senior economist at the Chicago Board of Trade, where he designed derivative contracts and electronic trading systems, and an international credit officer and foreign exchange trader at Wells Fargo Bank. Phelps is a member of the editorial board of the Financial Analysts Journal.
