Barra's Global Credit Spread Model in Use

Jan 1, 2002

In a companion article, Oren Cheyette has described recent enhancements to Barra's global fixed income risk models. How is this research incorporated into Barra's applications? This article uses Barra's Cosmos system to illustrate how this new risk model is presented to users. For this case study, we will examine a hypothetical euro-denominated credit portfolio run by a French investment manager. The portfolio is a new EMU corporate bond mutual fund, and is initially funded with 10 million euros. The fund is to be actively managed and is benchmarked against the Merrill Lynch EMU Corporate Bond Index. Compliance guidelines state that the tracking error of the portfolio relative to the benchmark shall not exceed 100 basis points; in addition, all investments must be denominated in euros, and must be rated by S&P as BBB or higher.