scholarly journals Fund Matching between Fund-Raisers and Investors in Financing Platform with Consideration of Default Risk

2021 ◽  
Vol 2021 ◽  
pp. 1-8
Author(s):  
Kenan Li ◽  
Xin Li ◽  
Zhijun Lin ◽  
Jing Lu ◽  
Pak Hou Che
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Default Risk ◽  
Random Variable ◽  
Expected Profit ◽  
General Distribution ◽  
Time Interval ◽  
The Interest Rate ◽  
The Cost ◽  
Fund Raiser

We construct a stochastic model to study the fund matching between fund-raisers and investors in a financing platform. The raising time is assumed to be a random variable. Then, there is a successful transaction probability that the fund matching is realized. Meanwhile, the interest and the commission rate that the platform earns affect the value of the probability. The platform maximizes its revenue by adjusting the commission rate. We find that the optimal commission rate decreases in investment time. However, when the time interval between two adjacent investments obeys the general distribution, the optimal commission rate increases in the annual interest rate. Besides, we extend the model into a duopoly case in which two fund-raisers compete for customers in the same platform by deciding their own interest rate. Due to lacking competition, the optimal interest rate in the monopoly case is lower than that in the duopoly case. Because the interest rate is the cost for the fund-raiser, the expected profit of the fund-raiser in the monopoly is higher than the expected profit of each fund-raiser in the duopoly case but lower than the total expected profit of two fund-raisers. The platform should choose some small loans as far as possible. The loans with smaller amount are easier for the platform to complete fundraising. For those large loans, the platform should try to ask for higher interest rates or more sufficient time to raise funds.

Korean Treasury Bond Futures Pricing Model

2004 ◽  
Vol 12 (1) ◽  
pp. 1-22
Author(s):  
Youngsoo Choi ◽  
Se Jin O ◽  
Jae Yeong Seo
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Market Price ◽  
Alternative Methods ◽  
Vasicek Model ◽  
Market Participants ◽  
Treasury Bond ◽  
Cost Of Carry ◽  
The Interest Rate ◽  
The Cost

This paper proposes two alternative methods which are used for pricing the theoretical value of the KTB futures on the non-traded underlying asset; first method is to use the CKLS model, under which the volatility of interest rate changes is highly sensitive to the level of the interest rate, and then employ binomial trees to compute the theoretical value of futures, second one is to use the multifactor Vasicek model considering correlations between yields-to-maturity and then employ the Monte Carlo simulation to compute it. In the empirical study on KTB303 and KTB306, an CKLS methodology is superior to the conventional KORFX method based on the cost-of-carry model in terms of the size of difference between market price and theoretical price. However, the phenomena, the price discrepancy using the KOFEX methodology is very small for all test perlod, implies that the KOFEX one is being used for the most market participants. The reasons that an multifactor Vasicek methodlogy is performed poorly in comparison to another methods are 1) the Vasicek model might be not a good model for explaining the level of interest rates, or 2) the important point considered by the most market participants may be on the volatility or interest rate, not on the correlations between yields-to-maturity.

scholarly journals Using Expected Geometric Values to Calculate the Cost of Interest in Hyper-inflationary Environments: the Case of Venezuela

2019 ◽  
Vol 2 (2) ◽  
pp. 10-21
Author(s):  
J. Tim Query ◽  
Evaristo Diz Cruz
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Expected Value ◽  
Defined Benefit ◽  
High Inflation ◽  
Defined Benefit Plans ◽  
The Interest Rate ◽  
The Cost ◽  
The Impact ◽  
The Relationship

It is of vital importance to explore the relationship between pensions and inflationary levels because this forms a link between social policy and economic development in the context of Venezuela’s challenging economy and its impact on the development of pension systems. With such rampant inflation, companies must adjust the rates of salary increases to avoid a significant decrease in the purchasing power of income from defined benefit plans. Our research seeks to find the possibility of using an average geometric rate of future interest rates expressed as an expected value to discount obligations. Consequently, the cost of interest associated with the actuarial liability of the Benefit plans increases substantially in the next fiscal period to the actuarial valuation, sometimes compromising its sustainability over time. In order to minimize this problem, two scenarios for calculating the interest rate are proposed to smooth out this volatile effect; both are based on a geometric average with the expectation of working life or with the duration of the obligations. We are careful to use a reasonable interest rate that is not so high as to compromise the cash flow, resulting in skewed annual results of the companies. Our research seeks to find the possibility of using an average geometric rate of future interest rates expressed as an expected value to discount obligations. We formulate and actuarially evaluate two different scenarios, based on job expectations and Macaulay's duration, of the obligations that allow the sustainability of the plan in an environment of extremely high inflation. To illustrate the impact of the basic annual expenditure of the period, the results of an actuarial valuation of an actual Venezuelan company were utilized. Despite some companies adjusting their book reserves increasingly through a geometric progression, the amounts associated with the costs of interest would be huge in any such adjustment pattern. Therefore, we suggest adoption of one of the alternatives described in the research.

Emerging Markets Interest Rates, International Reserves and Net Foreign Assets

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Joseph Bitar ◽  
Martin Boileau
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Risk Premium ◽  
Default Risk ◽  
International Reserves ◽  
Net Foreign Assets ◽  
Portfolio Balance ◽  
The Interest Rate ◽  
Interest Differential ◽  
Foreign Assets

Abstract In the context of a managed float regime, we adopt the portfolio balance view to show the effects of the net foreign assets of an economy and its gross international reserves level on interest rate differentials. We argue that the interest rate differential can be explained by three components, where the components are the expected depreciation of the domestic currency, a default risk premium, and a portfolio balance premium. Our theoretical analysis suggests that the interest differential is a convex function of the level of gross international reserves. In particular, the differential and gross reserves are inversely related at low levels of reserves, but positively at higher levels. We evaluate our framework for the case of Lebanon. We find that the differential is inversely related to both net foreign assets and gross international reserves. These findings are then confirmed with data from Indonesia and Mexico.

scholarly journals Interest rate stepping: Theory and evidence

2007 ◽  
Vol 1 (1) ◽  
pp. 67-93
Author(s):  
Sylvester Eijffinger ◽  
Eric Schaling ◽  
Willem Verhagen
Keyword(s):  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Aggregate Demand ◽  
Rate Sensitivity ◽  
Theoretical Models ◽  
Sufficient Evidence ◽  
Rate Step ◽  
The Interest Rate ◽  
The Cost

A stylised fact of monetary policymaking is that central banks do not immediately respond to new information but seem instead to prefer to wait until sufficient ‘evidence’ to warrant a change has accumulated. However, theoretical models of inflation targeting imply that an optimising central bank should continuously respond to shocks. This article attempts to explain this stylised fact by introducing a small menu cost which is incurred every time the central bank changes the interest rate. It is shown that this produces a relatively large range of inaction because this cost will induce the central bank to take the option value of the status quo into account. In other words, because action is costly, the central bank will have an incentive to wait and see whether or not the economy will move closer to the inflation target of its own accord. Next, the article analyses the implications for the time series properties of interest rates. In particular, we examine the effect of the interest rate sensitivity of aggregate demand, the slope of the Lucas supply function and the variance of demand shocks on the size of the interest rate step and the expected length of the time period till the next interest rate step. Finally, we analyse the effect of menu costs on inflationary expectations. In this respect we find that the economy will suffer from an inflationary bias if the cost of raising the interest rate exceeds the cost of lowering it.

scholarly journals Influencia De La Tasa De Interés Real En La Inversión Privada En El Ecuador (2000-2014)

2017 ◽  
Vol 13 (28) ◽  
pp. 201
Author(s):  
Romel Jimbiquiti Puenchera ◽  
Eduardo Zurita Moreano ◽  
Dante Ayaviri Nina ◽  
Gabriela González Bautista ◽  
Ma Eugenia Borja Lombeida
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Real Interest Rate ◽  
Positive Relationship ◽  
Private Investment ◽  
Neoclassical Theory ◽  
The Interest Rate ◽  
The Cost ◽  
Corporate Profits ◽  
Maximization Principle

Since the dollarization in Ecuador, the interest rate and investment rate has picked up as the economy grows. The present research explains the behavior of the investment as a function of the interest rates, through the neoclassical theory of Jorgenson. This model argues that to maximize corporate profits, it is necessary to define a production function consistent with the maximization principle. The research looks for a positive relationship between the product (Y) and the private investment (IP). In this context, the real interest rate (ir), which represents the cost of the use of capital, has a negative relation according to the empirical evidence in favor of Jorgenson's neoclassical theory.

scholarly journals Evaluating Investors’ Recognition Abilities for Risk and Profit in Online Loan Markets Using Nonlinear Models and Financial Big Data

2021 ◽  
Vol 2021 ◽  
pp. 1-15
Author(s):  
Qizhi He ◽  
Pingfan Xia ◽  
Bo Li ◽  
Jia-Bao Liu
Keyword(s):  
Big Data ◽  
Interest Rate ◽  
Interest Rates ◽  
Information Disclosure ◽  
Default Risk ◽  
Nonlinear Models ◽  
Web Crawler ◽  
Other Information ◽  
Loan Markets ◽  
The Interest Rate

Financial big data are obtained by web crawler, and investors’ recognition abilities for risk and profit in online loan markets are researched using heteroskedastic Probit models. The conclusions are obtained as follows: First, the preference for the item is reflected directly in the time and indirectly in the number of participants for being full, and the larger the preference, the shorter the time and the fewer the participants. Second, investors can discriminate the default risk not reflected by the interest rate, and the bigger the default risk, the longer the time and the more participants being full. Third, investors can discriminate the pure return rate deducted from the maturity term and credit risk, and the higher the return, the shorter the time and the fewer the participants being full. Fourth, default risks are reflected well by online loan platform interest rates, and inventors do not choose the item blindly according to the interest rate but consider comprehensively the profit and the risk. In the future, interest rate liberalization should be deepened, the choosing function of interest rates should be played better, and the information disclosure, investor education, and investor effective usage of other information should be strengthened.

DETERMINAN INFLASI DI INDONESIA PERIODE 1980-2015

2016 ◽  
Vol 21 (1) ◽  
pp. 1-7
Author(s):  
Risna Risna
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Money Supply ◽  
Government Spending ◽  
Positive Impact ◽  
Secondary Data ◽  
Quantitative Approach ◽  
State Spending ◽  
Factors Affecting ◽  
The Interest Rate

This study aims to determine the effect of government spending, the money supply, the interest rate of Bank Indonesia against inflation.This study uses secondary data. Secondary data were obtained directly from the Central Bureau of Statistics and Bank Indonesia. It can be said that there are factors affecting inflationas government spending, money supply, and interest rates BI. The reseach uses a quantitative approach to methods of e-views in the data. The results of analysis of three variables show that state spending significantand positive impact on inflationin Indonesia, the money supply significantand negative to inflationin Indonesia, BI rate a significantand positive impact on inflation in Indonesia

scholarly journals Risk Management for Bonds with Embedded Options

Mathematics ◽  
2020 ◽  
Vol 8 (5) ◽  
pp. 790
Author(s):  
Antonio Díaz ◽  
Marta Tolentino
Keyword(s):  
Risk Management ◽  
Interest Rate ◽  
Interest Rates ◽  
Interest Rate Risk ◽  
Interest Rate Models ◽  
Management Measures ◽  
Interest Rate Risk Management ◽  
Embedded Options ◽  
The Interest Rate ◽  
Interest Rate Change

This paper examines the behavior of the interest rate risk management measures for bonds with embedded options and studies factors it depends on. The contingent option exercise implies that both the pricing and the risk management of bonds requires modelling future interest rates. We use the Ho and Lee (HL) and Black, Derman, and Toy (BDT) consistent interest rate models. In addition, specific interest rate measures that consider the contingent cash-flow structure of these coupon-bearing bonds must be computed. In our empirical analysis, we obtained evidence that effective duration and effective convexity depend primarily on the level of the forward interest rate and volatility. In addition, the higher the interest rate change and the lower the volatility, the greater the differences in pricing of these bonds when using the HL or BDT models.

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.

scholarly journals The Impact of Interest Rate Ceilings on Microfinance Industry

2015 ◽  
Vol 2 (2) ◽  
pp. 10
Author(s):  
Ali Saleh Alshebami ◽  
D. M. Khandare
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Low Income ◽  
Secondary Data ◽  
Research Subject ◽  
Access To Credit ◽  
The Poor ◽  
Good Intention ◽  
The Interest Rate ◽  
The Impact

<p>Imposing ceilings on the interest rate has recently become one of the new hottest topics in microfinance industry; various debates have been discussing this issue to know the effect of interest rate ceilings on the supply of credit in particular and on microfinance industry in general. However in spite of the good intention behind these ceilings, there was no absolute result stating that ceilings have really contributed to the improvement or protection of the poor clients, indeed, these ceilings have hurt those low income people instead of helping them, due to these ceilings most of MFIs left the market or reduced their scale due to the inability to continue operating with low interest rate leaving the very poor clients without access to credit. Thus, the purpose of this paper is to review the impact of imposing such ceilings on the interest rates and to find out what alterative solutions can be employed as substitutes for them. This paper is entirely based on the secondary data collected from various records related to microfinance such as microfinance books, official websites and reports, published papers, and other sources related to the research subject.</p>

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