Using the pulled to par returns, proposed by [27] for computing historical V@R of bonds, we develop a way of extracting – at any reference date before maturity – implicit default propensities from observed bond quotes. This method is new to the literature and it has the advantage on focusing...

This paper evaluates the path-dependency/independency of most widespread Portfolio Insurance strategies. In particular, we look at Constant Proportion Portfolio Insurance(CPPI) structures and compare them to both the classical Option Based Portfolio Insurance(OBPI) and naive strategies such as...

Due to bond prices pull-to-par, zero-coupon bond historical returns are not stationary, as they tend to zero as time to maturity approaches. Given that the historical simulation method for computing value at risk (VaR) requires a stationary sequence of historical returns, zero-coupon bonds'...

Bonds historical returns cannot be used directly to compute VaR because the maturities of returns implied by the historical prices do not have the relevant maturities to compute VaR. Given the so-called pull-to-par in bonds, with return volatilities necessarily decreasing with diminishing...