7. For details, see Arik Ben Dor, Lev Dynkin, Patrick Houweling, Jay Hyman, Erik van Leeuwen, and Olaf Penninga, “A New Measure of Spread Exposure in Credit Portfolios,” Barclays Capital Publications, February 2010.

8. The general principle of a risk model is that the historical returns of assets contain information that can be used to estimate the future volatility of portfolio returns. However, good risk models must have the ability to translate the historical asset returns to the context of the current environment. This translation is made when designing a particular risk model/factor and when implemented delivers risk factors that are as invariant as possible. This invariance makes the estimation of the factor distribution much more robust. In the particular case of the DTS, by including the spread in the loading (instead of using only the typical duration), we change the nature of the risk factor being estimated. The factor now represents percentage change in spreads, instead of absolute changes in spreads. The former has a significantly more invariant distribution. For more details, see Antonio B. Silva, “A Note on the New Approach to Credit in the Barclays Capital Global Risk Model,” Barclays Capital Publications, September 2009.