{"title":"逐步过渡的制度切换信用利差模型","authors":"Pravesh Kumar, Rahul Sathyajit, Alexander Rudin","doi":"10.3905/jfi.2023.1.164","DOIUrl":null,"url":null,"abstract":"Credit spreads behavior displays a range of features that are challenging to model—strongly fat-tailed distribution of changes, periods of relative stability interrupted by prolonged violent shifts, lack of symmetry in spread rises vs. falls, etc. This article proposes a new model for spread behavior that incorporates these peculiarities without bringing excessive mathematical complexity. At the core of our approach is a Hidden Markov Model (HMM) that assumes that spreads follow a 2-state stochastic process. In a key departure from traditional HMM, the authors introduce explicit auto-regression into their formulation. The assumption behind that innovation is that while regime switches may be instantaneous and regimes may be characterized by different spread “fair” levels, the transition between such levels is gradual as opposed to instantaneous. As they illustrate, this assumption is critical for proper description of the spreads dynamic. The model lends itself well to tactical asset allocation involving high-yield credit assets and in a broad, multi-asset class setting.","PeriodicalId":53711,"journal":{"name":"Journal of Fixed Income","volume":"33 1","pages":"98 - 110"},"PeriodicalIF":0.0000,"publicationDate":"2023-07-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":"{\"title\":\"Modeling Credit Spreads through Regime Switching with Gradual Transition\",\"authors\":\"Pravesh Kumar, Rahul Sathyajit, Alexander Rudin\",\"doi\":\"10.3905/jfi.2023.1.164\",\"DOIUrl\":null,\"url\":null,\"abstract\":\"Credit spreads behavior displays a range of features that are challenging to model—strongly fat-tailed distribution of changes, periods of relative stability interrupted by prolonged violent shifts, lack of symmetry in spread rises vs. falls, etc. This article proposes a new model for spread behavior that incorporates these peculiarities without bringing excessive mathematical complexity. At the core of our approach is a Hidden Markov Model (HMM) that assumes that spreads follow a 2-state stochastic process. In a key departure from traditional HMM, the authors introduce explicit auto-regression into their formulation. The assumption behind that innovation is that while regime switches may be instantaneous and regimes may be characterized by different spread “fair” levels, the transition between such levels is gradual as opposed to instantaneous. As they illustrate, this assumption is critical for proper description of the spreads dynamic. The model lends itself well to tactical asset allocation involving high-yield credit assets and in a broad, multi-asset class setting.\",\"PeriodicalId\":53711,\"journal\":{\"name\":\"Journal of Fixed Income\",\"volume\":\"33 1\",\"pages\":\"98 - 110\"},\"PeriodicalIF\":0.0000,\"publicationDate\":\"2023-07-19\",\"publicationTypes\":\"Journal Article\",\"fieldsOfStudy\":null,\"isOpenAccess\":false,\"openAccessPdf\":\"\",\"citationCount\":\"0\",\"resultStr\":null,\"platform\":\"Semanticscholar\",\"paperid\":null,\"PeriodicalName\":\"Journal of Fixed Income\",\"FirstCategoryId\":\"1085\",\"ListUrlMain\":\"https://doi.org/10.3905/jfi.2023.1.164\",\"RegionNum\":0,\"RegionCategory\":null,\"ArticlePicture\":[],\"TitleCN\":null,\"AbstractTextCN\":null,\"PMCID\":null,\"EPubDate\":\"\",\"PubModel\":\"\",\"JCR\":\"\",\"JCRName\":\"\",\"Score\":null,\"Total\":0}","platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Fixed Income","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.3905/jfi.2023.1.164","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
Modeling Credit Spreads through Regime Switching with Gradual Transition
Credit spreads behavior displays a range of features that are challenging to model—strongly fat-tailed distribution of changes, periods of relative stability interrupted by prolonged violent shifts, lack of symmetry in spread rises vs. falls, etc. This article proposes a new model for spread behavior that incorporates these peculiarities without bringing excessive mathematical complexity. At the core of our approach is a Hidden Markov Model (HMM) that assumes that spreads follow a 2-state stochastic process. In a key departure from traditional HMM, the authors introduce explicit auto-regression into their formulation. The assumption behind that innovation is that while regime switches may be instantaneous and regimes may be characterized by different spread “fair” levels, the transition between such levels is gradual as opposed to instantaneous. As they illustrate, this assumption is critical for proper description of the spreads dynamic. The model lends itself well to tactical asset allocation involving high-yield credit assets and in a broad, multi-asset class setting.
期刊介绍:
The Journal of Fixed Income (JFI) provides sophisticated analytical research and case studies on bond instruments of all types – investment grade, high-yield, municipals, ABSs and MBSs, and structured products like CDOs and credit derivatives. Industry experts offer detailed models and analysis on fixed income structuring, performance tracking, and risk management. JFI keeps you on the front line of fixed income practices by: •Staying current on the cutting edge of fixed income markets •Managing your bond portfolios more efficiently •Evaluating interest rate strategies and manage interest rate risk •Gaining insights into the risk profile of structured products.