Filtered Historical Simulation for Initial Margin of Interest Rate Swap Under Korean Market

2018 ◽  
Vol 54 (11) ◽  
pp. 2516-2532
Author(s):  
Kyungsub Lee ◽  
Byoung Ki Seo
Keyword(s):  
Interest Rate ◽  
Historical Simulation ◽  
Interest Rate Swap ◽  
Korean Market ◽  
Rate Swap

Long Term Volatility of Interest Rate Swap and Macroeconomic Risk in Korean Market

2013 ◽  
Vol 21 (3) ◽  
pp. 255-273
Author(s):  
Byung-Jo Yoon ◽  
Kook-Hyun Chang ◽  
홍 민구
Keyword(s):  
Interest Rate ◽  
Yield Curve ◽  
Short Term ◽  
Interest Rate Swap ◽  
Macroeconomic Risk ◽  
Jump Model ◽  
Foreign Exchange Volatility ◽  
Korean Market ◽  
Rate Swap

This paper tries to empirically investigate whether macroeconomic risk may be statistically useful in explaining long-term volatility of interest rate swap (IRS) in korean market. This paper uses the component-jump model to estimate long-term volatility of IRS from 1/2/2003 to 1/31/2013. By using the component-jump model, the IRS volatility is decomposed into a long-term and a short-term component. According to this study, slope of yield curve and foreign exchange volatility as a proxy of macroeconomic risk have been significant in explaining long-term volatility of IRS.

Covered Interest Rate Arbitrage Trading and Negative Spreads of Interest rate Swap in Korea

2010 ◽  
Vol 18 (1) ◽  
pp. 43-75
Author(s):  
Seungyeon Won
Keyword(s):  
Interest Rate ◽  
Capital Market ◽  
Foreign Investors ◽  
Interest Rate Swap ◽  
Arbitrage Trading ◽  
The Interest Rate ◽  
Korean Market ◽  
Swap Spreads ◽  
Rate Swap

This paper empirically shows that the long-term persistence of negative swap spreads, which was unique phenomenon only in Korean interest rate swap market, could be caused by the covered interest rate arbitrage trading by foreign investors in Korean market. It concretely shows the fixed rates of currency swap, whose decreases expand the incentive for arbitrage trading by foreign investors, to positively influence the interest rate swap spreads. The empirical results suggests that the foreign factors might make more effect on the interest rate swap market than the spot bond market, resulting in the negative interest rate swap spreads. The results implies that, the asset pricing for interest rate swap needs to consider the foreign factors under the circumstances of open capital market.

Yield Curves, Swap Curves, and Term Structure of Interest Rates

2019 ◽  
pp. 203-228
Author(s):  
Tom P. Davis ◽  
Dmitri Mossessian
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Term Structure ◽  
Yield Curve ◽  
Yield Curves ◽  
No Arbitrage ◽  
Interest Rate Swap ◽  
The Interest Rate ◽  
Rate Swap ◽  
The U.S

This chapter discusses multiple definitions of the yield curve and provides a conceptual understanding on the construction of yield curves for several markets. It reviews several definitions of the yield curve and examines the basic principles of the arbitrage-free pricing as they apply to yield curve construction. The chapter also reviews cases in which the no-arbitrage assumption is dropped from the yield curve, and then moves to specifics of the arbitrage-free curve construction for bond and swap markets. The concepts of equilibrium and market curves are introduced. The details of construction of both types of the curve are illustrated with examples from the U.S. Treasury market and the U.S. interest rate swap market. The chapter concludes by examining the major changes to the swap curve construction process caused by the financial crisis of 2007–2008 that made a profound impact on the interest rate swap markets.

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