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Beyond the Spread: Enhancing Corporate Bond Portfolios with Structured Credit and Derivatives: An Empirical Analysis Using Modern Portfolio Theory Frameworks
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Orientador(es)
Resumo(s)
Credit derivatives and structured credit instruments remain largely overlooked in traditional
investment strategies, often dismissed as overly speculative. This study challenges that
perception by exploring whether these instruments can meaningfully enhance the
performance of fixed income portfolios. Using Modern Portfolio Theory (MPT) as a
framework, we constructed and analyzed portfolios combining traditional corporate bonds
with credit-focused ETFs, including exposure to CLOs, asset-backed securities, and credit
default swaps. Our findings reveal that select structured credit products delivered superior
risk-adjusted returns and lower volatility compared to conventional bond ETFs particularly in
a market environment marked by compressed spreads and declining yields. In addition, our
findings underscoring the limitations inherent in the assumptions embedded in Modern
Portfolio Theory (MPT) when the nature of portfolio exposure fundamentally changes by
adding structured credit products. In sum, these results suggest that, when applied
thoughtfully, credit derivatives and structured products can serve as powerful tools for return-seeking fixed income investors.
Descrição
Dissertation presented as the partial requirement for obtaining a Master's degree in Statistics and Information Management, specialization in Risk Analysis and Management
Palavras-chave
Structured credit credit derivatives fixed income portfolio optimization Modern Portfolio Theory credit ETFs risk-adjusted returns diversification SDG 4 - Quality education SDG 8 - Decent work and economic growth