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Citigroup Inc. Zero Coupon Bond Yields And Credit Spreads, August 11, 2014

|Includes:Citigroup Inc. (C)

(click to enlarge)cClick to enlarge

This graph shows the zero coupon yield curve for both the issuer and the U.S. Treasury. Both curves are produced by Kamakura Risk Information Services using Kamakura Risk Manager, version 8.1. The U.S. Treasury curve is created by the maximum smoothness forward rate method of Adams and van Deventer [1994], which was recently confirmed as consistent with "no arbitrage" standards of Heath, Jarrow and Morton in an important paper by Kamakura Managing Director Prof. Robert A. Jarrow. The issuer's zero coupon yield curve was created by applying the maximum smoothness forward rate approach to zero coupon credit spreads, relative to the base U.S. Treasury curve. The underlying senior non-call fixed rate bond data for the issuer was supplied by the TRACE system and processed by Kamakura Risk Manager to minimize the trade-weighted sum of squared pricing errors.

Zero coupon credit spreads are a critical input to the risk management process, with applications in counterparty credit risk, transfer pricing, stress testing, capital adequacy assessment, market risk and asset and liability management. For more information on KRIS zero coupon yield curve data, please contact info@kamakuraco.com. For more information on the maximum smoothness forward rate approach, see Chapters 5 and 17 of van Deventer, Imai and Mesler Advanced Financial Risk Management, 2nd edition, John Wiley & Sons, 2013. To subscribe to the Kamakura Risk Information Services credit spread data base, please contact info@kamakuraco.com.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Stocks: C