Fixed Income Risk Modeling

Most asset owners have traditionally viewed fixed income securities as a relatively safe asset class—a haven from volatility in equity and other markets. While it is certainly true that government bonds are generally a low-risk asset class for domestic investors in developed markets, long-term government bonds can be every bit as risky as a diversified equity portfolio. More generally, many fixed income securities, such as mortgage backed securities, collateralized debt obligations or high-yield bonds can be relatively risky investments: Driven by a variety of pressures, including requirements from asset owners and regulators, there is a continuing demand in the financial community for improved tools for quantitative risk forecasting of fixed income portfolios.