We evaluate several long/short strategies for managing a portfolio of default swaps. The strategies are based on a ranking of credits by residuals, which are the differences between market spreads and spreads generated by the iSpread structural model. Investment grade portfolios for the U.S. and...

We give an empirical assessment of I^2, a structural credit model based on incomplete information. In this model, investors cannot observe a firm's default barrier. As a consequence, I^2 exhibits both the economic appeal of a structural model and the tractable pricing formulae and empirical...

A recent article of Flesaker and Hughston introduces a one factor interest rate model called the rational lognormal model. This model has a lot to recommend it including guaranteed finite positive interest rates and analytic tractability. Consequently, it has received a lot of attention among...

Maximum drawdown, the largest cumulative loss from peak to trough, is one of the most widely used indicators of risk in the fund management industry, but one of the least developed in the context of probabilistic risk metrics. We formalize drawdown risk as Conditional Expected Drawdown (CED),...

This paper describes an empirical study of shortfall optimization using Barra fundamental factors. We compare minimum shortfall to minimum variance portfolios in the US, UK, and Japanese equity markets using Barra Style Factors (Value, Growth, Momentum, etc.). We show that minimizing shortfall...

Risk-only investment strategies have been growing in popularity as traditional in- vestment strategies have fallen short of return targets over the last decade. However, risk-based investors should be aware of four things. First, theoretical considerations and empirical studies show that...

Multi-period measures of risk account for the path that the value of an investment portfolio takes. The most widely used such path-dependent indicator of risk is drawdown, which is a measure of decline from a historical peak in cumulative returns. In the context of probabilistic risk metrics,...