Empirical studies in corporate credit modelling; liquidity premia, factor portfolios & model uncertainty

Insurers match the cash flows of typically illiquid insurance liabilities, such as in-force annuities, with government and corporate bonds. As they intend to buy corporate bonds and hold them to maturity, they can capture the value attached to liquidity, without running the market liquidity risk that is associated with having to sell bonds in the open market. During the long consultation period dedicated to the mark-to-market valuation of insurance assets and liabilities for the Solvency II regulatory framework, CEIOPS noted the importance of the accurate breakdown of the credit spread into its components, most notably the credit and non-credit (i.e. liquidity) components. In this thesis we review many modelling efforts to isolate the liquidity premium and propose a reduced-form modelling approach that relies on a new, relative liquidity proxy. Challenging the status quo when it comes to active and passive investment strategies, products and funds, Exchange Traded Funds and `smart-beta' products provide investors with straightforward ways to strategically expose a portfolio to risk drivers, raising the bar for traditional investment funds and managers. In this thesis, we investigate how traditional sources of equity outperformance (alpha), such as small caps, low volatility and value, translate to UK corporate bonds. For automated trading strategies in corporate bonds, and those with specific factor exposure requirements in particular, transaction costs, rebalancing and an optimal turnover strategy are crucial; these aspects of building factor portfolios are explored for the UK market. Since the financial crisis, mathematical models used in finance have been subject to a fair amount of criticism. More than ever has this highlighted the need of better risk management of financial models themselves, leading to a surge in `model validation' roles in industry and an increased scrutiny from regulatory bodies. In this thesis we look at stochastic credit models that are commonly used by insurers to project forward credit-risky bond portfolios and the model uncertainty and parameter risk that arises as a result of relying on published credit migration matrices. Specifically, our investigation focuses on two violations of the Markovian process that credit transitions are assumed to follow and statistical uncertainty of the migration matrix

Empagliflozin in Patients with Chronic Kidney Disease

Background The effects of empagliflozin in patients with chronic kidney disease who are at risk for disease progression are not well understood. The EMPA-KIDNEY trial was designed to assess the effects of treatment with empagliflozin in a broad range of such patients. Methods We enrolled patients with chronic kidney disease who had an estimated glomerular filtration rate (eGFR) of at least 20 but less than 45 ml per minute per 1.73 m(2) of body-surface area, or who had an eGFR of at least 45 but less than 90 ml per minute per 1.73 m(2) with a urinary albumin-to-creatinine ratio (with albumin measured in milligrams and creatinine measured in grams) of at least 200. Patients were randomly assigned to receive empagliflozin (10 mg once daily) or matching placebo. The primary outcome was a composite of progression of kidney disease (defined as end-stage kidney disease, a sustained decrease in eGFR to < 10 ml per minute per 1.73 m(2), a sustained decrease in eGFR of & GE;40% from baseline, or death from renal causes) or death from cardiovascular causes. Results A total of 6609 patients underwent randomization. During a median of 2.0 years of follow-up, progression of kidney disease or death from cardiovascular causes occurred in 432 of 3304 patients (13.1%) in the empagliflozin group and in 558 of 3305 patients (16.9%) in the placebo group (hazard ratio, 0.72; 95% confidence interval [CI], 0.64 to 0.82; P < 0.001). Results were consistent among patients with or without diabetes and across subgroups defined according to eGFR ranges. The rate of hospitalization from any cause was lower in the empagliflozin group than in the placebo group (hazard ratio, 0.86; 95% CI, 0.78 to 0.95; P=0.003), but there were no significant between-group differences with respect to the composite outcome of hospitalization for heart failure or death from cardiovascular causes (which occurred in 4.0% in the empagliflozin group and 4.6% in the placebo group) or death from any cause (in 4.5% and 5.1%, respectively). The rates of serious adverse events were similar in the two groups. Conclusions Among a wide range of patients with chronic kidney disease who were at risk for disease progression, empagliflozin therapy led to a lower risk of progression of kidney disease or death from cardiovascular causes than placebo