KYNEX Bulletin August 2014
In this issue we discuss our interest rate shift methodology. Visit us on the web: www.kynex.com E-Mail your suggestions and comments to: bulletin@kynex.com Unsubscribe Copyright © 1996 - 2014 Kynex, Inc. All Rights Reserved.	Impact of Yield Curve and Credit Spread Shifts on Portfolios 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: An introduction to our Interest Rate Shift Methodology that assesses the impact of yield curve shifts and their corresponding credit shifts on a portfolio of credit instruments. Explanation of the Kynex Stress Tests and the Portfolio Risk Scenarios. Fundamentals and Mechanics of our Yield Curve Analysis tool. This tool shows the current interest rate environment (IRE), and then allows you to adjust that environment in a way which is consistent with the risk scenario you wish to explore. The following links will allow you to learn how to use this tool. Site Location and Description Benchmark Curve Adjustment Mechanics Curve Adjustment Guidance Benchmark Curve Adjustment for a Specific Bond Default Probability Paths implied by the market quote. Discussion of the differences between yield spread, interpolated spread, par spread, CDS spread and the effect of funding in the market. COMPLETE ARTICLE
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