Download or read book Essays in Volatility and Risk Modelling in Interest Rate Swaps written by A.S.M. Sohel Azad and published by . This book was released on 2011 with total page 434 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis focuses on the linkages between volatility of interest rate swaps (hereafter, IRS) and macroeconomic risk, cross-border linkages of swap markets from two-factor volatility models, and the influence of three additional risk factors on swap spreads. In order to investigate these, the thesis presents three empirical research essays that all revolve around a common theme: volatility and risk modelling in interest rate swaps. First research essay, presented in Chapter 3, explores whether and how the volatility of swap yield curves is related to macroeconomic risk. The methodology in this essay is based on a recent Spline-GARCH model, multivariate regression, principal component analysis and Granger causality. The empirical analysis is conducted on a sample of daily data for the period between 1987 and 2010 from three major swap markets namely, Japan, the UK and the US. The empirical analysis reveals two important findings. First, using "low-frequency" volatility extracted from aggregate volatility shocks of the three swap markets the analysis suggests that this low-frequency IRS volatility has strong and (mostly) positive association with most of the macroeconomic risk proxies. This relationship between the macroeconomic risks and IRS volatility varies slightly across the different swap maturities but is robust to alternative volatility specifications, namely C-GARCH model and model-free realized volatility. This finding is fairly consistent with the argument that the greater the macroeconomic risk the greater is the use of derivative instruments to hedge or speculate. Second, to explore the dynamic interaction including lead-lag relationship, the study finds that it is the low-frequency (IRS) volatility that Granger causes most of the macroeconomic risk proxies. This finding is, nonetheless, consistent with the argument that, as forward looking instrument, IRS has predictive power to forecast the changes in macroeconomic risk. Motivated by these findings, an empirical analysis is done on reverse regression in which macroeconomic risk proxies and their principal components are regressed on low-frequency volatility of swaps. The findings are encouraging for those who would like to use swaps in predicting macroeconomic risk. Second research essay, presented in Chapter 4, explores whether the observed relationship between macroeconomic risk proxies and volatility of swap market can be extended to investigate the cross-border linkages of swap markets. The mixed and inconclusive evidence on volatility transmission and swap market integration motivated this essay to investigate this issue from different approach. In particular, using the decomposed volatilities (long-term and short-term), this essay examines the financial integration and volatility linkages of three major swap markets, namely Japan, the UK and the US. To facilitate empirical investigation, a step-by-step approach is proposed in measuring volatility transmission and financial linkages including dynamic correlations, contagion and causality of volatility components. These findings have important implications for portfolio risk diversifications in swaps.Third research essay, presented in Chapter 5, exploits the puzzle with regard to determinants and components of swap spreads. This essay argues that in addition to default risk and liquidity risk, three risk factors namely, business cycle risk, market skewness risk and correlation risk contain significant information in determining the swap spreads. Using the GMM approach, this essay provides empirical support of risk premia related to these three risk factors in addition to default and liquidity risk premia. The results are robust to sub-sample analysis.
Download or read book Three Essays on Investments and Time Series Econometrics written by Joshua Andrew Brooks and published by . This book was released on 2015 with total page 143 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation includes three essays on investments and time series econometrics. This work gives new insight into the behavior of implied marginal tax rates, implied volatility, and option pricing models. The first essay examines the movement of implied marginal tax rates. A body of research points to the existence of implied marginal tax rates that can be extracted from security or derivative prices. We use the LIBOR-based interest rate swap curve and the MSI-based interest rate swap curve to examine changes in the implied tax rate. We document multiple statistically and economically significant structural breaks in the long-run implied marginal tax rate that are not exclusively located in the financial crisis (one as recent as October, 2010). These breaks represent persistent divergence from long run averages and indicate that mean reversion models may not accurately describe the stochastic processes of implied marginal tax rates. In the second essay, I develop an asymmetric time series model of the VIX. I show that the VIX and realized volatility display significant nonlinear effects which I approximate with a smooth-transition autoregressive model. I find that under certain regimes the VIX depends almost exclusively on previous realized volatility. Under other regimes, I find that the VIX depends on both its lags and previous realized volatility. Since the VIX has become a popular hedging instrument, this finding has important implications for risk managers who elect to use the VIX and its related investment vehicles. It also has implications for the use of implied volatility in value-at-risk forecasting. The third essay presents a new model for option pricing model selection. There is a significant performativity issue intrinsic in much of the option pricing literature. Once an option-pricing model (OPM) gains widespread acceptance, volatilities tend to move so that the OPM fits well with observed prices. This often leads to systematic mispricing based purely on model results. A number of systematic issues such as volatility smile are present in OPMs. To remedy this issue, I propose a new method for ranking OPMs based on one step ahead forecasts. This model transforms the data to build a distribution of the stochastic term present in OPM. This sample distribution is then tested for normality so that OPMs can be ranked in a Bayesian-like framework by their closeness to a normal distribution.
Download or read book Essays on asset liabilty modelling written by David Frederik Schrager and published by Rozenberg Publishers. This book was released on 2007 with total page 195 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Essays on Model Risk written by Johannes Bernhard Rudolf Rohde and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Essays in Derivatives written by Don M. Chance and published by John Wiley & Sons. This book was released on 2011-07-05 with total page 403 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the updated second edition of Don Chance’s well-received Essays in Derivatives, the author once again keeps derivatives simple enough for the beginner, but offers enough in-depth information to satisfy even the most experienced investor. This book provides up-to-date and detailed coverage of various financial products related to derivatives and contains completely new chapters covering subjects that include why derivatives are used, forward and futures pricing, operational risk, and best practices.
Download or read book Empirical Essays on Financial Economics written by Henrik Degrér and published by . This book was released on 2004 with total page 156 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Essays on Volatility and Risk in Financial Markets written by Kwanho Kim and published by . This book was released on 1993 with total page 312 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Swap and Other Structured Products written by Franklin Schram and published by GRIN Verlag. This book was released on 2007-08 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2006 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: A+, University of Westminster, course: Financial Derivatives, 47 entries in the bibliography, language: English, abstract: The increased volatility in the financial products world has raised concern about new possibilities of Risk Management leading into increased use of structured products. Credit derivatives are financial instruments to manage risk. They isolate such risk from the underlying financial asset. This essay, firstly, is going to examine the impact on swap products as a tool in Risk Management followed by an examination of key areas in structured products development that have experienced the strongest growth in the last decade. For both types, the current theory and pricing will be outlined followed by a demonstration of some characteristic applications in Financial Risk Management.
Download or read book Essays on Exchange Rate Volatility written by Nikolaos Antonakakis and published by . This book was released on 2010 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis explores a number of aspects of time series modelling of exchange rate volatility. After having reviewed the main modelling approaches used in the existing literature, the first key chapter investigates the best models for forecasting the volatility of daily exchange rate returns for a number of countries, including new results for a selection of developing countries. The superior performance of the FIGARCH model, noted in the recent literature, is confirmed in the case of industrialised countries, but the MARCH model results in substantial gains in insample estimation and out-of-sample forecasting performance when dealing with developing countries. The next essay investigates exchange rate volatility co-movements and spillovers before and after the launch of the Euro. This study has the advantage of a longer sample period than the most comparable papers. Key results are that the dominance of the Deutschemark in volatility transmission was succeeded by the dominance of the Euro following its launch, in that both exert unidirectional and persistent spillovers on the sterling, the Swiss franc and the Japanese yen. Further, there is evidence of greater stability in financial markets after the launch of the Euro in that conditional variances, covariances and correlations in exchange rate returns declined significantly. Finally the thesis turns to assessing the impact of official central bank interventions (CB1s) on exchange rate returns, their volatility and bilateral correlations. By exploiting the recent publication of intervention data by the Bank of England, this study is able to investigate interventions by a total number of four central banks, while the previous studies have been limited to three (the Federal Reserve, Bundesbank and Bank of Japan). The results of the existing literature are reappraised and refined. In particular, unilateral CBI is found to be more successful than coordinated CBI. The likely implications of these findings are then discussed.
Download or read book Essays on the Interest Rate Model Specification Estimation and Valuation of Defaultable Securities written by Xin Li and published by . This book was released on 2002 with total page 222 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Volatility Duration and Value at risk written by Pujin Liu and published by . This book was released on 2012 with total page 286 pages. Available in PDF, EPUB and Kindle. Book excerpt: The thesis consists of three essays dealing with the modeling of volatility in financial markets, trade durations, and Value-at-Risk (VaR). The first essay models nonlinearities in the return series to estimate time-varying volatility by incorporating both regime changes and jumps. Two types of regime-switching GARCH-jump models with autoregressive jump intensity are presented. The first model follows the traditional Markov regime-switching model proposed in Hamilton (1989). As the unknown regimes in the Markov model lead to difficulty in forecasting, a threshold GARCH-jump model, in which regimes are known after observing the threshold variable in the previous period, is also proposed. The second essay models the intraday durations between two adjacent trade transactions by considering the impact of unaccounted struc- tural changes on parameter estimates. Monte Carlo simulations show that the observed high persistence in trade durations can be spurious and caused by unaccounted structural changes in the data generating process. The third essay investigates the use of realized moments in VaR forecasting, which is an important issue in risk management. Many VaR models rely only on the mean and volatility and ignore higher moments of returns, which leads to un- derestimation of VaR due to the unaccounted fat-tail property of the return series. Applying the Cornish-Fisher expansion to incorporate realized higher moments constructed from high frequency data, the proposed realized moment models outperform the realized volatility model and the traditional RiskMet- rics model, especially during the financial crisis period (2008-09).
Download or read book Trading Risk and Volatility in Interest Rate Swap Spreads written by and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines how risk in trading activity can affect the volatility of asset prices. We look for this relationship in the behavior of interest rate swap spreads and in the volume and interest rates of repurchase contracts. Specifically, we focus on convergence trading, in which speculators take positions on a bet that asset prices will converge to normal levels. We investigate how the risks in convergence trading can affect price volatility in a form of positive feedback that can amplify shocks in asset prices. In our analysis, we see empirical evidence of both stabilizing and destabilizing forces in the behavior of interest rate swap spreads that can be attributed to speculative trading activity. We find that the swap spread tends to converge to a long-run level, although trading risk can sometimes cause the spread to diverge from that level. -- convergence trading ; interest rate swaps ; swap spread ; repurchase contracts ; trading risk ; volatility of asset prices
Download or read book Essays on Interest rate Volatility and the Pricing of Interest rate Derivatie Assets written by Gerald Alfred Hanweck and published by . This book was released on 1994 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Three Essays in Mathematical Finance written by Yingzi Zhu and published by . This book was released on 1997 with total page 188 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Essays on Forecasting and Volatility Modelling written by Gustavo Fruet Dias and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Impact of Regulatory News and Discount Rate Changes on the Time Varying Volatility of Interest Rate Swap Spreads written by Donna Fletcher and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The explosive growth of the interest rate swap market (as well as the entire derivative market) has drawn regulatory concern. Among the reasons for concern is the belief that the interest rate swap is a risky interest rate management tool. The exposure created by the use of an interest rate swap is a function of unexpected changes in interest rates, regulatory, legal, and accounting documentation. Prior studies that addressed the risk of interest rate swaps have focused on the actual and potential risk of default ensuing from these unexpected changes. While the loss from default is arguably the most important exposure created by the use of interest rate swaps, understanding swap price movements in different market environments facilitates the efficient management of interest rate swap positions, and could therefore reduce the riskiness of this interest rate risk management tool. This study conducts an empirical analysis of the impact of regulatory news and discount rate changes on the time varying volatility of interest rate swap spreads across various maturities.
Download or read book Essays in the Study and Modelling of Exchange Rate Volatility written by Genaro Sucarrat and published by . This book was released on 2006 with total page 186 pages. Available in PDF, EPUB and Kindle. Book excerpt:
