VRM 13. Non Parallel Term Structure Shifts: LOs

a) Describe principal components analysis and explain its use in understanding term structure movements.

b) Define key rate exposures and know the characteristics of key rate exposure factors, including partial ‘01s and forward-bucket ‘01s.

c) Describe key-rate shift analysis.

d) Define, calculate, and interpret key rate ‘01 and key rate duration.

e) Compute the positions in hedging instruments necessary to hedge the key rate risks of a portfolio.

f) Relate key rates, partial ‘01s, and forward-bucket ‘01s and calculate the forward-bucket ‘01 for a shift in rates in one or more buckets.

g) Apply key rate and multi-factor analysis to estimating portfolio volatility.