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Apr 16, 2005
The Tracking Error Model
Current Functionality
The Yield Book Tracking Error Model gives Asset Managers the ability to compute tracking
error and risk decomposition analysis on bonds, trades, portfolios and against benchmarks. The model was
released into production in April 2005.
Based on 10,000 simulations of 800+ global risk factors, the Tracking Error Model calculates bond and portfolio returns
derived from changes in risk factors pertinent to each security. The risk factors cover Sovereign bonds, Corporate bonds,
US MBS, CMBS and CMOs, Agencies, Supranationals, Pfandbriefs, Swaps, Futures, FX Forwards, and Cash. Government and Swap
Curves from numerous countries are covered in the model. Furthermore, customers will be able to automate the Tracking
Error calculation and reporting in an overnight process.
Tracking Error measures improve upon traditional risk measures by incorporating volatilities and correlations.
Choose from any of the following measures to break down a portfolio and index at sector levels:
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Tracking Error |
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TE from a set of various risk factors |
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Component TE |
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Contribution of the Sector to the overall TE |
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Marginal TE |
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Change in total TE if market value of a sector is increased |
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Incremental TE |
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Change in total TE if a sector is sold |
Future Enhancements
The most popular requests for futures releases include:
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Value-at-Risk (VaR) |
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Expanded derivatives coverage (swaptions) |
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Longer horizon periods (currently one month) |
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Portfolio Optimization using Tracking Error constraints |
Other News Stories:
Yield Book Investments: Deal Modeling and Computing Capacity
Municipal Bond Database is now available through the Yield Book
The Yield Book Add-In is here!
Yield Book Database Manager
Yield Book Catalog
Overnight Batch Monitor Released
The Return Attribution Model
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