Is this old material? The 4 risk factors for selecting a benchmark for FI portfolio:
- Market value risk: Interest rate sensitivity should be similar, which means they should have similar durations.
- Income risk: Income streams should also be similar.
- Credit risk: The credit quality of the bonds in your portfolio should be similar to that of the bonds in the index.
- Liability framework risk: it is saying that your index should have similar characteristics to the liabilities you need to fund, .
I came upon the above list on a 2019 mock but I cant find the material anywhere in the text… What I find instead is 6 other items for reducing tracking error from an index:
- Portfolio adjusted duration
- Key rate duration
- Percent sector and quality
- Sector and quality spread duration
- Sector, coupon and maturity cell
- Issuer exposure