Risks and Risk Management

Thomas Poufinas ()
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Thomas Poufinas: Democritus University of Thrace

Chapter Chapter 9 in Fixed Income Investing, 2022, pp 455-534 from Springer

Abstract: Abstract The discussionreasons to invest in private debt that took place in the previousrisk management chapterriskmanagement indicated that fixed incomefixed income investing exposes investors to risks. This probably comes as no surprise, as all typestypes of investments bear risks. However, in the minds of some people bonds and in particular sovereign bonds are considered as risk-free investments, at least in terms of making the promised payments. The recent history, and in particular the 2008 crisis, reminded us that governments may not be able to honor their obligations. Enterprises may not be able to make all the payments of the bonds they issue as well. Investors, insurers and bankers though make their profits by assuming risks. Consequently, it is to their interest to measure and manage these risks so that their assumption is well-informed and prudent. This chapter analyzes deeper the risks that are generated from fixed income instruments, such as interest rate risk, credit risk and other potential risks, such as liquidity risk, and offers ways to manage them. It introduces measures such as Value-at-Risk and explains how they can be used to measure and manage the relevant risks. After having read this chapter the reader will be able to understand better the sources of risks which appear in a bond portfolio, as well as the ways to measure and manage them.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-87922-8_9

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DOI: 10.1007/978-3-030-87922-8_9

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