Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Return Enhancement can be explained using following heads:
Use of a Valuation Model: An investor having access to a bond valuation model can build a bond portfolio from bonds that are designated as mispriced on the low side by the model. A significant point here is - the nature of a bond valuation model is much more technical compared to equities. Further, fungibility or interchangeability between bonds in terms of their risk characteristics is more than that found in equities. In other words, the switches in between bonds that may be suggested by a valuation model have more true arbitrage characteristics than the switches among equities.
Options Overwriting: A portfolio manager can enhance the returns of a bond portfolio through options overwriting, which means writing interest rate related calls or puts. The forecast for bonds depends on the timing of long-term interest rates.
Minimization of the Value of the Bond Portfolio: The portfolio manager can minimize the value of the bond portfolio while implementing liability funding methods. For example, let us discuss the return enhancement technique while immunizing a single liability. Suppose the problem of the portfolio manager is
The two constraints the portfolio manager experiences are:
In the above equations Pi denotes price of bond i.
The first constraint results in an asset portfolio composed of only bonds. The second constraint causes the duration of the bond portfolio to match the duration of the liability. This technique of optimization is popularly known as linear programming. Such a problem can be solved in a simple way by using well established algorithms. The portfolio manager has to make sure whether the internal rate of return of the bond portfolio thus constructed is more or less similar to the rate he has used to discount the present value of the liability. If not, the portfolio manager in order to discount the liability must optimize again using the internal rate of return of the earlier optimal portfolio.
An important point here is the choice of the set of bonds over which the optimization will take place. Such set must be homogeneous in terms of quality rating. Otherwise, the optimized portfolio will concentrate just on those bonds that result in higher yields as they are cheap and does not consider their risky nature.
The asset that acts as a collateral for an asset-backed security can either be an amortizing or a non-amortizing asset. In an amortizing asset,
Q. Illustrate report on net present value? The NPV of a project is a positive $56000. This point to that using our cost of capital 10% as our discount rate the project is we
Explain how the working capital management policies affect the profitability and liquidity of the firm?
Serene Hall ?? Assignment As a consequence of the high levels of stress being recorded in the UK, and a general shift towards a healthier more relaxed lifestyle, as an essential in
Product Advantages: A firm that has developed a reputation for superior products in the domestic market may find acceptance from the foreign consumers as well. Hence, such firm
Current Liabilities: A liability is an obligation to convey assets or do services at some future date. For purposes of balance sheet analysis, it is important to create a dist
Why do you think closed-end country funds frequently trade at a premium or discount? Answer: CECFs (closed-end country funds) trade at a premium or discount since capital market
Explain how using a risk-adjusted discount rate enhances capital budgeting decision making compared to by using a single discount rate for all projects? The risk-adjusted disco
Explain how to compute the overall balance and discuss its significance. The overall BOP is defined by computing the cumulative balance of payments involving the current account,
Issuance Calendar Issuance calendar gives clear and timely information about the borrowing program of the government. It clearly conveys the maturity profile of outstanding sto
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd