The Expectation Hypothesis and Interest Rate Volatility on the Euromarket: Some Empirical Results

1994 ◽  
pp. 129-137 ◽  
Author(s):  
Peter Kugler
Keyword(s):  
Interest Rate ◽  
Empirical Results ◽  
Interest Rate Volatility ◽  
Expectation Hypothesis

scholarly journals HOLDER-EXTENDIBLE EUROPEAN OPTION: CORRECTIONS AND EXTENSIONS

2015 ◽  
Vol 56 (4) ◽  
pp. 359-372 ◽  
Author(s):  
PAVEL V. SHEVCHENKO
Keyword(s):  
Brownian Motion ◽  
Interest Rate ◽  
Real Life ◽  
Option Price ◽  
Geometric Brownian Motion ◽  
Fixed Amount ◽  
Underlying Asset ◽  
Closed Form Solutions ◽  
Pricing Options ◽  
Interest Rate Volatility

Financial contracts with options that allow the holder to extend the contract maturity by paying an additional fixed amount have found many applications in finance. Closed-form solutions for the price of these options have appeared in the literature for the case when the contract for the underlying asset follows a geometric Brownian motion with constant interest rate, volatility and nonnegative dividend yield. In this paper, option price is derived for the case of the underlying asset that follows a geometric Brownian motion with time-dependent drift and volatility, which is more important for real life applications. The option price formulae are derived for the case of a drift that includes nonnegative or negative dividend. The latter yields a solution type that is new to the literature. A negative dividend corresponds to a negative foreign interest rate for foreign exchange options, or storage costs for commodity options. It may also appear in pricing options with transaction costs or real options, where the drift is larger than the interest rate.

Determinants of Treasury-LIBOR Swap Spreads

2005 ◽  
Vol 08 (04) ◽  
pp. 687-705 ◽  
Author(s):  
D. K. Malhotra ◽  
Vivek Bhargava ◽  
Mukesh Chaudhry
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Default Risk ◽  
Yield Curve ◽  
Short Term ◽  
Long Run ◽  
Interest Rate Volatility ◽  
Short Run ◽  
Using Data ◽  
Swap Spreads

Using data from the Treasury versus London Interbank Offer Swap Rates (LIBOR) for October 1987 to June 1998, this paper examines the determinants of swap spreads in the Treasury-LIBOR interest rate swap market. This study hypothesizes Treasury-LIBOR swap spreads as a function of the Treasury rate of comparable maturity, the slope of the yield curve, the volatility of short-term interest rates, a proxy for default risk, and liquidity in the swap market. The study finds that, in the long-run, swap spreads are negatively related to the yield curve slope and liquidity in the swap market. We also find that swap spreads are positively related to the short-term interest rate volatility. In the short-run, swap market's response to higher default risk seems to be higher spread between the bid and offer rates.

To Raise the Golden Anchor? Financial Crises and Uncertainty During the Great Depression

1999 ◽  
Vol 59 (3) ◽  
pp. 624-658 ◽  
Author(s):  
J. Peter Ferderer ◽  
David A. Zalewski
Keyword(s):  
Economic Growth ◽  
Interest Rate ◽  
Great Depression ◽  
Interwar Period ◽  
Gold Standard ◽  
Financial Crises ◽  
Capital Flight ◽  
The Great Depression ◽  
Interest Rate Volatility

This study examines the interplay between financial crises, uncertainty, and economic growth during the interwar period. Comparing the experiences of ten countries, we provide evidence that reductions in the credibility of a country's commitment to the gold standard generated capital flight and higher interest rate volatility. This volatility, in turn, was inversely correlated with economic growth. These results suggest that financial crises helped propagate the Great Depression, in part, by increasing uncertainty.

Predicting Interest Rate Volatility

1992 ◽  
Vol 1 (4) ◽  
pp. 21-27 ◽  
Author(s):  
Robert C. Kuberek
Keyword(s):  
Interest Rate ◽  
Interest Rate Volatility

Pricing Interest Rate Swaps in Malaysia

2004 ◽  
Vol 07 (04) ◽  
pp. 493-507 ◽  
Author(s):  
Dick Davies ◽  
David Hillier ◽  
Andrew Marshall ◽  
King Fui Cheah
Keyword(s):  
Interest Rate ◽  
Yield Curve ◽  
Capital Controls ◽  
Sample Period ◽  
Kuala Lumpur ◽  
Empirical Results ◽  
Illiquid Markets ◽  
Interest Rate Swaps ◽  
Derivative Markets

This paper compares the theoretical price of interest rate swaps implied from the yield curve with the actual Kuala Lumpur Interbank Offer Rates used for swap resets in the Malaysian swap market for both semi-annual and annual interest rate swaps between 1996 and 2002. As far as we are aware no previous paper has considered pricing swaps in a less established derivative markets. Our empirical results indicate significant and persistent differences between the theoretical implied price and the actual reset price for both swaps over the sample period. This finding has implications for traders and banks in pricing swaps in Malaysia and more generally for pricing swaps in less established or illiquid markets or where capital controls have been introduced.

scholarly journals Dynamic Relationship between RMB Exchange Rate and Interest Rate Based on VAR-DCC-GARCH Model

2020 ◽  
Vol 214 ◽  
pp. 03018
Author(s):  
Xuhang Zhao
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Exchange Rate Volatility ◽  
Garch Model ◽  
Nominal Exchange Rate ◽  
Practical Significance ◽  
Causality Test ◽  
Dynamic Relationship ◽  
Interest Rate Volatility

Based on the daily data of Shibor and nominal exchange rate from 2006 to 2019, this paper constructs VAR model and uses Granger causality test and impulse response model to analyze the dynamic relationship between exchange rate and interest rate. Based on the DCC-GARCH model, this paper analyzes the correlation between exchange rate volatility and interest rate volatility, and concludes that there is a weak negative correlation between exchange rate and interest rate. Both exchange rate and monetary policy will have an important impact on China’s economic environment, so it is of great practical significance to study the joint impact of exchange rate and monetary policy.

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