Credit Risk Management Strategy

Easy Risk Management Applications Credit Risk Management

XYZ Investment Fund is evaluating its exposure to credit risk across its portfolio of corporate bonds. To enhance its credit risk management, the fund manager is considering implementing various strategies. One of the strategies includes using credit derivatives to transfer the risk associated with potential defaults of the securities in the portfolio.

Which of the following strategies is the most appropriate for managing credit risk in this context?

Increasing the duration of the portfolio to capture higher yields.

Utilizing credit default swaps to hedge against potential defaults.

Diversifying the portfolio across different sectors to reduce concentration risk.

Hint

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