Bonds' risk measures

Let’s beat it hard.

What are the risk measures for bonds? What are the disadvantages of them?

“lets beat it hard” = check your motives!

semi variance

shortfall risk


Std deviation

Std Deviation: shortfall - assumes normal distribution of returns.

VaR: Can be gamed.

Shortfall Risk: focus on only the negative side of the distribution. So skews results.

Semi Variance - calculates variance based on a particular cutoff…

Duration, spread duration, KRD, PV distribution of CF, too?

Std Deviation disadvantage is also that the number of parameters needed to calculate it increases exponentially as the number of securities in the portfolio increases.

Semi- variance provides no further information than std deviation if returns are normally distributed

Shortfall risk and VaR both do not show what the worst outcome could be

and VaR also assumes returns are normally distributed.

Not sure if there is a distinction to be made between RISK FACTORs and RISK Measures.

Risk Measures - Std. Deviation are the factors used to identify performance on a portfolio. In an essence these are ex-post measures.

What you have mentioned above - are what needs to be considered while building the portfolio. These are ex-ante factors to be considered while building a portfolio and matching up to an index / benchmark, and affect the ex-post measurement.

Shortfall risk does not assume a normal distribution. This threw me off, i forget where I read it but it was clealry stated in the CFAI text.