Passive Bond Market Exposure Passive bond market exposure is a strategy in the fixed-income market that aims to mirror the overall investment landscape. It considers factors such as credit quality, borrower type, maturity, and duration. The objective is not to…

Fixed-Income Universe and Bond Market Index Investors often diversify their portfolio by allocating a portion of their assets to the fixed-income universe, drawn by the risk-return characteristics of bond markets. A strategy based on a bond market index provides a…

Risks in LDI Strategies for Single and Multiple Liabilities Liability Driven Investment (LDI) strategies, widely used by pension funds and insurance companies, are subject to various risks. These risks can impact both single and multiple liabilities. The key relationship for…

Liabilities and Liability-Driven Investment (LDI) Strategy The liabilities are classified into four types: Type I, Type II, Type III, and Type IV. Each type has unique characteristics and implications. We will focus on Type IV liabilities Model Development for Type…

Interest Rate Immunization Principle The principle of interest rate immunization is a strategic approach used in managing multiple liabilities, especially applicable to Type I cash flows. In this context, Type I cash flows refer to those with known scheduled amounts…

Liability-Driven Investing and Interest Rate Immunization Liability-driven investing is a strategy primarily used to manage the interest rate risk on multiple liabilities. However, for the purpose of understanding the techniques and risks of the classic investment strategy known as interest…

Long/Short, Long Extension, and Market-Neutral Portfolio Approaches These approaches are investment strategies that aim to increase returns and manage risk. They are based on research insights and involve both long and short positions in securities. This approach is based on…

Well-Constructed Portfolio A well-constructed portfolio is a strategic assembly of investments designed to meet the risk and return expectations of investors. It doesn’t guarantee an excess return over the benchmark, particularly in the short term. However, it is structured to…

Investment Product Costs and Performance Performance of an investment product can be significantly influenced by various costs. For instance, two investment strategies with the same approach can have different costs based on the manager’s implementation approach. The difference can be…

Risk Constraints in Portfolio Construction In the process of portfolio construction, risk constraints play a pivotal role. These constraints can be either formal or heuristic. Heuristic constraints are controls that are imposed on the permissible portfolio composition through an exogenous…