We consider modeling errors in the hedging of a portfolio composed from BBB-rated bonds. By doing this, we open a new perspective to the debate on the relationship between corporate bonds and CDS spreads. We find that in ordinary times the added value of indexlinked credit derivatives is very...

We develop alternative models for hedging yield curve risk and test them by hedging US Treasury bond portfolios through note/bond futures. We show that traditional implementations of models based on principal component analysis, duration vectors and key rate duration lead to high exposure to...

Introduction -- Adjusting principal component analysis for model errors / Nicola Carcano -- Alternative models for hedging yield curve risk : an empirical comparison / Nicola Carcano and Hakim Dallo -- Applying error-adjusted hedging to corporate bond portfolios / Giovanni Barone-Adesi, Nicola...

Where institutions and individuals averagely invest the majority of their assets in money-market and fixed-income instruments, interest rate risk management could be seen as the single most important global financial issue. However, the majority of the key techniques used by most investors were...