The Pain of Credit Bonds Asset Allocation: A “EVA/CVaR” Frame Based On Credit Grade Dynamic Transition

Tian-ping Ma


How to manage the risk of unexpected loss caused by a bonds credit grade dynamic transit of portfolio management is important. This paper establishes a new model with EVA as the objective function and CVaR as the constraint condition. The new factors such as investment opportunity cost, bond repurchase cost, macroeconomic factors of bond credit grade dynamic transit are introduced in one unified model. Monte Carlo simulation, the critical value of cumulative distribution inverse function and continuous linear optimization auxiliary variables are used to this “EVA-CVaR” frame. Empirical results show that the new frame is better than the traditional ones, which can achieve higher EVA under unit CVaR risk. It provides a new scientific way for the asset allocation of credit bonds portfolios.


Credit grade dynamic transition, Unexpected loss risk, Asset allocation


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