FactSet’s Multi-Asset Class risk model is based on Monte Carlo valuation of the risk measures. The model supports a breakdown of the risk measures into common factors that provide an intuitive view of the sources of risk, with the risk of a fixed income portfolio broken into the interest rate risk, spread risk, and the risk associated with the volatility of the interest rates.
This white paper, FactSet MAC U.S. Municipal Bond Risk Model: The FactSet Multi-Asset Class Risk Framework, describes how the spread and volatility risk of U.S. municipal bonds is computed in the MAC model, as well as why the dominance of callable bonds makes calculating volatility risk so critical. The paper also reviews the methodology behind the breakdown of fixed income return to components, as well as the basics of the DTS modeling framework.
FactSet clients, read the white paper via Online Assistant. Not a FactSet client? Schedule a one-on-one demo with a FactSet specialist.