Quantifying individual and aggregate risks of instruments from different asset classes with bottom-up approaches is computationally challenging, so multifactor risk models are used instead. These models are implemented by identifying common systematic risk factors and by translating the factors into risks of individual securities. For models of corporate fixed-income instruments, factors driving curve and spread dynamics are a natural choice.
Download the Daily Corporate Spread Factor Models white paper for an overview of the first set of FactSet daily corporate spread models to be introduced to our Monte Carlo Multi-Asset Class product. These linear cross-sectional models cover bonds issued by developed market corporates and denominated in seven of the major currencies: USD, EUR, GBP, JPY, CHF, AUD, and CAD. The common factor returns are estimated via cross-sectional regressions using representative universes of investment-grade and high-yield bonds.
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