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Primary Article

DTSSM (Duration Times Spread)

Arik Ben Dor, Lev Dynkin, Jay Hyman, Patrick Houweling, Erik van Leeuwen and Olaf Penninga
The Journal of Portfolio Management Winter 2007, 33 (2) 77-100; DOI: https://doi.org/10.3905/jpm.2007.674795
Arik Ben Dor
An analyst, Quantitative Portfolio Strategy, at Lehman Brothers in New York City.
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  • For correspondence: abendor@lehman.com
Lev Dynkin
A managing director, head of Quantitative Portfolio Strategy at Lehman Brothers in NewYork City.
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  • For correspondence: ldynkin@lehman.com
Jay Hyman
A senior analyst, Quantitative Portfolio Strategy at Lehman Brothers.
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  • For correspondence: jhyman@lehman.com
Patrick Houweling
A senior quantitative researcher at Robeco Asset Management in Rotterdam, The Netherlands.
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  • For correspondence: P.Houweling@robeco.nl
Erik van Leeuwen
A senior portfolio manager at Robeco Asset Management in Rotterdam, The Netherlands.
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  • For correspondence: E.M.H.van.Leeuwen@robeco.nl
Olaf Penninga
A senior portfolio manager at Robeco Asset Management in Rotterdam, The Netherlands.
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  • For correspondence: O.Penninga@robeco.nl
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Abstract

Duration Times Spread (DTSSM) is a new measure of spread exposure for corporate bond portfolios. It is based on a detailed analysis of credit spread behavior. Changes in spreads are not parallel but rather linearly proportional to the level of spread, in that bonds trading at wider spreads experience greater spread changes. Consequently, systematic spread volatility of a sector is proportional to its spread; similarly, the idiosyncratic spread volatility of a particular bond or issuer is proportional to its spread, whatever the sector, maturity, or time period. Tests confirm that the behavior of spreads makes excess return volatility proportional to DTS. DTS has advantages over measures commonly used (such as spread duration) to forecast excess return volatility or construct portfolios, affecting the formulation of investment constraints, asset allocation, risk modeling, and performance attribution.

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The Journal of Portfolio Management
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DTSSM (Duration Times Spread)
Arik Ben Dor, Lev Dynkin, Jay Hyman, Patrick Houweling, Erik van Leeuwen, Olaf Penninga
The Journal of Portfolio Management Jan 2007, 33 (2) 77-100; DOI: 10.3905/jpm.2007.674795

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DTSSM (Duration Times Spread)
Arik Ben Dor, Lev Dynkin, Jay Hyman, Patrick Houweling, Erik van Leeuwen, Olaf Penninga
The Journal of Portfolio Management Jan 2007, 33 (2) 77-100; DOI: 10.3905/jpm.2007.674795
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