Skip navigation

Alternate Hedge Ratios for Bonds Subject to Credit Risk

Authors: Skinner, Frank S.
Issue Date: 18-Feb-1996
Series/Report no.: FIN-95-031
Abstract: To date there is no satisfactory way to measure and control interest rate risk for bonds subject to high levels of credit risk. In addressing this gap, this work develops the survival measure, a new measure of interest rate sensitivity for corporate bonds. The survival measure leads to the development of nine alternate hedge ratios, seven of which are new. Considerable variations in the size of alternate hedge ratios are observed, including some that are consistently larger and in use. This suggest that improvements in hedging strategies may be available, depending on whether credit risky bonds have a consistently greater (less) response to a change in the level of interest rate than suggested by the Macaulay duration based hedge ratio.
Appears in Collections:Finance Working Papers

Files in This Item:
File Description SizeFormat 
wpa95031.pdf1.43 MBAdobe PDFView/Open

Items in FDA are protected by copyright, with all rights reserved, unless otherwise indicated.