Instructional Video: Modeling and Hedging Non-Parallel Term Structure Shifts

Topic Progress:

Tuckman, Fixed Income Securities, Chapter 5: Multi-Factor Risk Metrics and Hedges is a 39 minute instructional video analyzing the following concepts:

* Describe and assess the major weakness attributable to single-factor approaches when hedging portfolios or implementing asset liability techniques.
* Define key rate exposures and know the characteristics of key rate exposure factors including partial ‘01s and forward-bucket ‘01s.
* Describe key-rate shift analysis.
* Define, calculate, and interpret key rate ‘01 and key rate duration.
* Describe the key rate exposure technique in multi-factor hedging applications and summarize its advantages and disadvantages.
* Calculate the key rate exposures for a given security, and compute the appropriate hedging positions given a specific key rate exposure profile.
* Describe the relationship between key rates, partial ’01s and forward-bucket ‘01s, and calculate the forward bucket ‘01 for a shift in rates in one or more buckets.
* Construct an appropriate hedge for a position across its entire range of forward bucket exposures.
* Explain how key rate and multi-factor analysis may be applied in estimating portfolio volatility.

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