Multi-level risk-controlled sector optimization of domestic and international fixed-income portfolios including conditional VaR
نویسندگان
چکیده
Recent experience in capital markets has highlighted the need for risk-sensitive portfolio strategies in both domestic investment grade as well as opportunistic high-yield and emerging market portfolios. We have previously developed a fixed-income sector optimization methodology to facilitate tradeoffs between various sectors based on their contribution to the total portfolio return and risk. We maximize portfolio return subject to constraints including Value-at-Risk (VaR) and other downside risk measures, both absolute and relative to a benchmark (market and liability-based). Our method optimizes interest rate, curve, credit, and volatility exposures to achieve the highest expected return (view-oriented, historically based, or quantitatively forecast) within the allowed risk space defined by various specified risk constraints.
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