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Duration vs Spread
Posted: April 25th, 2014, 8:00 pm
by blackscholes
Does anyone have an approach on quantify the effects of duration on spread (OAS)?For example, if a portfolio has an effective duration of 4 with an OAS of +50bp and the effective duration increases to let's say 6 with an OAS of +100bp, how do I isolate the contribution of effective's duration to the OAS change? Does the 2 year increase in duration add 10bp, 20bp, etc..?
Duration vs Spread
Posted: April 26th, 2014, 7:49 pm
by bearish
I don't think it is possible to give a definite answer to your question. The shape of the spread curve changes across time, markets and credit quality. High yield spread curves are sometimes downward sloping, whereas IG curves are almost always upward sloping, but the slope is not all that stable.
Duration vs Spread
Posted: April 28th, 2014, 2:10 pm
by Martinghoul
That's like a bazillion $$$ question, innit? Might I suggest a bit of regression as a starting point? With all the appropriate caveats...