Chapter 17 - 6 Duration of a portfolio – market value...

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1 Chapter 2 – Measuring a Portfolio’s Risk Profile 1. Variance of a 2 bond portfolio – Variance of a portfolio of risky assets is a function of the variances of the individual risky assets in the portfolio and their covariances. Formula. 2. The correlation coefficient – measures the degree of association between movements of the returns on two bonds. Formula. 3. Correlation is also the square root of R 2 for a simple linear regression 4. Tracking error – difference between portfolio and benchmark returns. Active vs Passive portfolio management 5. Duration as a risk measure - compared with Std. Dev. 1. Positive vs negative returns and computational issues
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Unformatted text preview: 6. Duration of a portfolio – market value weighted 7. Contribution of duration of a bond or sector 8. Spread duration – is a measure of the price sensitivity of non-treasury securities in response to a change in the spread. In other words, how volatile is the underlying spread of a security 9. Compare and contrast the three spread duration measures used for fixed-rate bonds: nominal, zero volatility and OAS 10. Compute and interpret spread duration of a portfolio 11. End of chapter problems – 10, 12 and 13 12. Homework problems...
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