Qontigo, the risk, analytics, and index solution provider, has added credit default swaps (CDS) and increased factor coverage to its Axioma Credit Spread Factor Risk Model (Credit Factor Model). The model should result in better risk forecasting for asset managers, asset owners and hedge funds with portfolio exposure in the high yield and investment grade space.
The Axioma Credit Spread Factor Risk Model can be accessed within Qontigo’s cloud-deliverable enterprise portfolio risk management system, Axioma Risk, and has also been designed to work with portfolio optimisation tools. For example, by uploading risk model and exposure files into the Axioma Portfolio Optimizer, users can potentially achieve advanced portfolio construction goals such as minimising benchmark tracking error while realising desired exposure tilts.
“The Credit Factor Model is built from our extensive collection of issuer credit curves,” said Chris Sturhahn, chief product officer for Analytics. “Because our factors are derived from the most liquid part of each issuer curve, with bond specific risk estimated from the residuals of issuer curve returns instead of factors based on sector or index spread levels, our model has greater explanatory power for bond returns. The result is more accurate risk and meaningful performance attribution.”
Some functions of the model include:
• Duration Times Spread (DTS)-based factor structure capturing the impact of market exposure, industry groups, country or region, and credit quality;
• Separate factor groups for USD IG, USD HY, Euro, Sterling and Yen;
• CDS basis factors to support consistent yet differentiated modelling of CDS and bonds;
• Specific risk estimation at both the issue and issuer level;
• Bond exposures generated from 12,000 issuer credit spread curves and a proprietary issuer identification methodology that determines bond-to-issuer mappings.
In addition to the Axioma Credit Spread Factor Risk Model, a curves-based risk framework known as the Axioma Credit Spread Curve Risk Model is also available. Both versions are part of the Axioma family of fixed income models which includes coverage for sovereign debt, derivatives, MBS, structured debt, commodities and other asset classes.
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