The increasing credit spread volatility as a result of increasing bond portfolios at banks requires the quantification of credit spread risk to avoid undesired effects in the P&L result. For that purpose it is necessary to separate the credit spread risk from the interest risk position of the bond, to recognize term-time valuation results in the P&L in a clean manner and to measure credit spread risk (on a portfolio basis). The article presents methods of credit spread calculation as well as the reconciliation of the credit spread risk result with the P&L result.
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