IDEAS home Printed from https://ideas.repec.org/a/rsk/journ4/2161154.html
   My bibliography  Save this article

Portfolio allocation to corporate bonds with correlated defaults

Author

Listed:
  • Mark B. Wise, Vineer Bhansali

Abstract

ABSTRACT This article deals with the problem of optimal allocation of capital to corporate bonds in fixed income portfolios when there is the possibility of correlated defaults. Under fairly general assumptions for the distribution of the total net assets of a set of firms we show that retaining the first few moments of the portfolio default loss distribution gives an extremely good approximation to the full solution of the asset allocation problem. We provide detailed results on the convergence of the moment expansion. We also provide explicit results for the inverse problem, ie, for a given allocation to the set of risky bonds, what is the average risk premium required to make the portfolio optimal. Numerous numerical illustrations exhibit the results for realistic portfolios and utility functions.

Suggested Citation

Handle: RePEc:rsk:journ4:2161154
as

Download full text from publisher

File URL: https://www.risk.net/system/files/import/protected/digital_assets/10117/Portfolio_allocation_to_corporate_bonds_with_correlated_defaults.pdf
Download Restriction: no
---><---

More about this item

Statistics

Access and download statistics

Corrections

All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rsk:journ4:2161154. See general information about how to correct material in RePEc.

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

We have no bibliographic references for this item. You can help adding them by using this form .

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Thomas Paine (email available below). General contact details of provider: https://www.risk.net/journal-of-risk .

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.