scholarly journals The Impact of Financial Risks on Financial Investment in Infrastructure: Based on a Two-Factor Stochastic Differential Equation

2021 ◽  
Vol 2021 ◽  
pp. 1-14
Author(s):  
Qiming Zhang ◽  
Xuemeng Guo ◽  
Hongchang Li
Keyword(s):  
Differential Equation ◽  
Interest Rate ◽  
Risk Sharing ◽  
Inflation Rate ◽  
Financial Risks ◽  
Present Value ◽  
Private Partnership ◽  
Financial Investment ◽  
Inflation Volatility ◽  
Interest Rate Volatility

Financial risks, such as inflation and interest rate changes, significantly affect the costs and benefits of infrastructure projects. Nevertheless, there is a dearth of research concerning financial investment (government subsidies) for infrastructure projects in the context of inflation and interest rate changes. Accordingly, this study builds a stochastic differential equation model based on inflation rate and interest rate, through which the expression of government subsidies in public-private partnership is optimised. Specifically, the Monte Carlo simulation was used to undertake a calculation of the present value of operating loss subsidy and risk-sharing subsidy for the N City Metro Line 3. Subsequently, the effect of inflation, nominal interest rates, interest rate volatility, as well as inflation volatility, on the present value of operating loss subsidies was investigated. It was established that the dynamic random discount rate based on inflation rate and interest rate may effectively simulate the effect of inflation rate and interest rate changes on project operating loss. Moreover, it is feasible to calculate the present value of the risk-adjusted operating loss subsidy and the present value of the risk-sharing subsidy. Inflation rate, inflation volatility, and interest rate volatility are positively correlated with the present value of operating loss subsidies, whereas the interest rate is negatively correlated with the present value of inflation-adjusted operating loss subsidies. Inflation volatility has the greatest effect on the present value of subsidies, followed by interest rate volatility and inflation rate. Ultimately, this paper provides an effective tool for quantitative simulation of and risk-sharing in public-private partnership projects, which can facilitate a regional economy’s sustainable development.

Possible Misinterpretations of Equivalent Annual Incomes in Inflationary Times

1987 ◽  
Vol 4 (4) ◽  
pp. 210-211
Author(s):  
W. David Klemperer
Keyword(s):  
Interest Rate ◽  
Real Interest Rate ◽  
Inflation Rate ◽  
Present Value ◽  
Expected Inflation

Abstract Equivalent annual incomes (EATs) are often computed to compare investments with similar size but different lives. One common form of EAT fails to readily illustrate that before-tax present values of new projects should not change with inflationary expectations, given the same real interest rate. This type of EAI also fails to reflect reduction in after-tax present value of new projects as expected inflation rises. An EAI formulation is suggested that eliminates these problems and assures correct project rankings regardless of the inflation rate. North. J. Appl. For. 4:210-211, December 1987.

The impact of inflation rate announcements on interest rate volatility: Australian evidence

1997 ◽  
Vol 7 (5) ◽  
pp. 559-566 ◽  
Author(s):  
Param Silvapulle ◽  
Robert Pereira ◽  
John H. H. Lee
Keyword(s):  
Interest Rate ◽  
Inflation Rate ◽  
Interest Rate Volatility ◽  
The Impact

scholarly journals Faktor-Faktor Yang Mempengaruhi Indeks Harga Saham Gabungan

2019 ◽  
Vol 24 (1) ◽  
pp. 144
Author(s):  
Hendang Tanusdjaja, Augustpaosa Nariman
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Capital Market ◽  
Stock Price ◽  
Inflation Rate ◽  
Global Financial Crisis ◽  
Stock Exchange ◽  
Financial Investment ◽  
The Capital Market

The growth of the stock market in Indonesia from the Composite Stock Price Index (CSPI) showed quite fantastic in the last ten years after experiencing a downturn in the 2008 global financial crisis. The stock investment in the capital market is not the only type of financial investment, there is another type, namely Indonesia Bank Certificate (SBI) and money market measured by exchange rates. This study aims to find out how the SBI interest rate, exchange rate, money supply (M2) and inflation affect the JCI in the 2011-2015 periods. By using SPSS V20, it was found that in the period of SBI interest rate, exchange rate, money supply (M2) and inflation rate had no effect on the CSPI. This is due to the level of return on the capital market is greater than the SBI interest rate and exchange rate difference, while the number of transactions on the Indonesia Stock Exchange is still dominated by foreign investors, M2 does not affect the CSPI, and they are generally traders rather than investors, thus the inflation rate affects the company's growth was slightly ignored.

scholarly journals Revisiting the impact of intrinsic financial risks on the firm value of banks in ASEAN-5 countries: a panel data approach

2020 ◽  
Vol 15 (2) ◽  
pp. 200-213
Author(s):  
Oluwaseyi Olalere ◽  
Md. Aminul Islam ◽  
Mohd Zukime Mat Junoh ◽  
Wan Sallha Yusoff ◽  
Mohammed Masum Iqbal
Keyword(s):  
Interest Rate ◽  
Credit Risk ◽  
Firm Value ◽  
Inflation Rate ◽  
Positive Impact ◽  
Interest Rate Risk ◽  
Financial Risks ◽  
Policy Makers ◽  
Rate Risk ◽  
The Impact

The paper aims to explore the impact of financial risks on the firm value of banks in ASEAN-5 countries. The study used the panel data regression model to analyze the available data for 63 commercial banks in ASEAN-5 countries from 2009 to 2017, totaling 567 observations. GMM dynamic estimation was also used for robustness and comparison purposes. The financial risk was measured using the non-performing loans ratio (NPL), the loan to deposit ratio (LD), the liquid asset ratio (LATA), the cost to income ratio (CIR), and the net interest margin (NIM), while firm value was measured using the enterprise value. The study used controlled variables proxied by size, GDP growth and the inflation rate, while the correlation between credit risk and interest rate risk (CR•IR) was also determined. Given the results of the study, credit risk proxy by non-performing loans ratio has a significant positive effect on the firm value, the liquidity risk (LD) has a significant positive impact on the firm value of ASEAN banks, while LATA has a significant negative effect on the firm value. Operational risk (CIR) and interest rate risk (NIM) have a significant negative impact on the firm value of ASEAN-5 banks. Bank size and inflation rate significantly and negatively affect the firm value, while GDP growth is found to have a significant positive impact on the firm value of ASEAN-5 banks. An insignificant interaction is found between credit risk and interest rate risk (CR•IR). The GMM estimation also supported these findings. The results obtained will be an important signal for policy makers, which is useful for the effective mobilization and allocation of credits to productive areas and helps manage inherent risks. The study provides implications for all countries regarding the financial risks associated with the value of the firm. Therefore, this study offers new insights into this relationship by providing useful information to the academics, policy makers, governments, and other stakeholders and serves as a benchmark for further study in this area.

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.

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