August 2014 |
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In this issue we discuss our interest rate shift methodology. Visit us on the web:E-Mail your suggestions and comments to: Copyright © 1996 - 2014 |
Impact of Yield Curve and An interest rate risk methodology that merely applies a parallel shift to the yield curve while holding the credit spreads constant will never fully capture the price behavior of securities in the market. Parallel shifts rarely occur especially when rates are changing significantly. Using the Kynex twist tool, we present an improved methodology that demonstrates the desirability to simultaneously shift the yield curve in a non-parallel way (more realistic) while incorporating meaningful changes to credit spreads that capture what you believe will happen to rates and spreads in the market. In this bulletin we present the following:
Benchmark Curve
Adjustment Mechanics Benchmark Curve
Adjustment for a Specific Bond
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