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TRS sensitivities


New Member
Hello there

I do have a question that is not directly linked to the FRM exam but still it would be great to have some inputs on it.

Assuming a parallel shock of the interest rate curve or spread curve, a common corporate bond has the same x% spread sensitivity as the x% interest rate sensitivity as I simply discount by (1 + ir(t) + sp(t))^-t. Naively I would have expected to have the same behavior when valuing a TRS, but I was obviously wrong.

When saying "valuing TRS" I mean linking link its cash flows to the survival and default probabilities I retrieve from the ratio between the risk free IR curve and the spread curve and then discounting with risk free. Doing so, the spread sensitivity is usually bigger than the IR sensi.

Does anyone have an economical explanation for this? Technically it's not surprising as the models for valuing a corporate bond and a TRS are different... Or, in other words, is the market risk of a TRS actually different to the market risk of its reference asset?