English, Article, Journal or magazine article edition: Do Leveraged Credit Derivatives Modify Credit Allocation? Jean-François Boulier; Marie Brière; Jean-Renaud Viala

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Bookmark: http://trove.nla.gov.au/version/110871
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Do Leveraged Credit Derivatives Modify Credit Allocation?
Author
  • Jean-François Boulier
  • Marie Brière
  • Jean-Renaud Viala
Physical Description
  • preprint
Notes
  • This paper examines how credit derivatives have changed the construction of an efficient portfolio. Credit derivatives provide a way of gaining exposure to credit risk alone, to the exclusion of interest rate risk. They also permit a relatively easy use of leverage. We examine two types of allocation: the first is a conventional investment in government bonds, corporate bonds (investment grade and high yield) and equities in the United States; the second replaces corporate bonds with credit derivatives, which may also be leveraged. We look at past data on returns, risk and correlations of these investments, and we show that the credit risk component seems to have a strongly diversifying effect relative to the traditional asset classes, i.e. equities and government bonds. We then compute efficient frontiers within a standard mean-variance framework. The results show the advantages of credit derivatives for portfolio diversification, and the usefulness of leveraging this investment to extend the limits of the efficient frontier.
  • RePEc:sol:wpaper:08-014
Language
  • English
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