Fixed Income Risk Calculations

This is a quick tour of the mechanics and calculations involved in calculating the risk of a fixed income portfolio. It starts from the observation that a a newly minted bond doesn’t have a price history; consequently, you can’t calculate historical volatility. So you can infer the history by pricing the bond using historical interest rates. But then how do you get historical interest rates at the exact times your bond cash flows occur? You’ll need to spline the interest rates.

We’ll cover his to manually spline the yield curve to infer historical price volatility. We’ll demonstrate cash flow mapping combined with duration calculations as an alternative to splining. Lastly, we’ll demonstrate the classic PCA approach.

An Excel workbook will demonstrate the calculations and display required R code.

--

David Romoff is currently teaching Financial Risk Management at Columbia University and Machine Learning at NYCDataScience Academy. David has previously worked in Risk Management at On Deck capital, AIG, and Bear Stearns. He has an MBA from the Zicklin School of Business in New York City and a Master of Science in Actuarial Science from Columbia University.

More information on David is available on linked in and Columbia’s website.

http://sps.columbia.edu/certificates/enterprise-risk-management-certificate/faculty/david-romoff

https://www.linkedin.com/in/davidromoff/

--

We'll have some pizza and networking at 6.30; the talk will start at 7.