Savings and Loan Capital and the Use of Interest Rate Swaps

1992 ◽  
Vol 36 (2) ◽  
pp. 50-57
Author(s):  
David Vang
Keyword(s):  
Interest Rate ◽  
Financial Institutions ◽  
Interest Rate Risk ◽  
Interest Rate Swap ◽  
Savings And Loan ◽  
Interest Rate Swaps ◽  
Flexible Rate ◽  
The Interest Rate ◽  
The Relationship ◽  
Rate Swap

This paper models the relationship between interest rate swaps and capital in savings and loan associations. The interest rate swap is a way in which financial institutions exchange the flexible rate on their liabilities with a fixed interest rate to hedge themselves from interest rate risk, and therefore reduce the need for a capital cushion. The empirical evidence, however, shows that a small capital cushion reduces the firm's possibility of using interest rate swaps because no partner is willing to engage in a rate swapping contract with a firm that does not have adequate capital and soundness.

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.

scholarly journals Interest Rate Swap Market Complexity and Its Risk Management Implications

Complexity ◽  
2018 ◽  
Vol 2018 ◽  
pp. 1-20
Author(s):  
Steve Y. Yang ◽  
Esen Onur
Keyword(s):  
Risk Management ◽  
Interest Rate ◽  
Network Structure ◽  
Risk Sharing ◽  
Interest Rate Swap ◽  
Market Participants ◽  
Interest Rate Futures ◽  
The Interest Rate ◽  
Management Behaviors ◽  
Rate Swap

The primary objective of this paper is to study the post Dodd-Frank network structure of the interest rate swap market and propose a set of effective complexity measures to understand how the swap users respond to market risks. We use a unique swap dataset extracted from the swap data repositories (SDRs) to examine the network structure properties and market participants’ risk management behaviors. We find (a) the interest rate swap market follows a scale-free network where the power-law exponent is less than 2, which indicates that few of its important entities have a significant number of contracts within their subsidiaries (a.k.a. interaffiliated swap contracts); (b) swap rate volatility Granger-causes swap users to increase their risk sharing intensity at entity level, but market participants do not change their risk management strategies in general; (c) there is a significant contemporaneous correlation between the swap rate volatility and the underlying interest rate futures volatility. However, interest rate swap volatility does not cause the underlying interest rate futures volatility and vice versa. These findings provide the market regulators and swap users a better understanding of interest rate swap market participants’ risk management behaviors, and it also provides a method to monitor the swap market risk sharing dynamics.

scholarly journals Deep Learning-Based Method for Computing Initial Margin

2021 ◽  
Vol 7 (1) ◽  
pp. 41
Author(s):  
Joel Pérez Villarino ◽  
Álvaro Leitao Rodríguez
Keyword(s):  
Neural Networks ◽  
Artificial Neural Networks ◽  
Deep Learning ◽  
Interest Rate ◽  
Financial Institutions ◽  
Optimal Configuration ◽  
Model Parameters ◽  
Basel Iii ◽  
Interest Rate Swap ◽  
Rate Swap

Following the guidelines of the Basel III agreement (2013), large financial institutions are forced to incorporate additional collateral, known as Initial Margin, in their transactions in OTC markets. Currently, the computation of such collateral is performed following the Standard Initial Margin Model (SIMM) methodology. Focusing on a portfolio consisting of an interest rate swap, we propose the use of Artificial Neural Networks (ANN) to approximate the Initial Margin value of the portfolio over its lifetime. The goal is to find an optimal configuration of structural hyperparameters, as well as to analyze the robustness of the network to variations in the model parameters and swap features.

Accounting for Interest Rate Swaps

1987 ◽  
Vol 2 (4) ◽  
pp. 396-408
Author(s):  
Harold Bierman
Keyword(s):  
Interest Rate ◽  
Accounting Standards ◽  
Financial Statements ◽  
Interest Rate Swap ◽  
Interest Rate Swaps ◽  
Changes In Risk ◽  
Rate Swap

There are major accounting issues for both the counterparties and the principal of an interest rate swap transaction. Currently, the market for swaps well exceeds $150 billion, and at this writing there are no explicit accounting standards for such transactions. This paper defines the basic swap transaction and the relevant accounting issues and offers possible solutions. Notes to the financial statements are needed to reveal the changes in risk, both to the counterparties and to the principal.

scholarly journals Centralized Trading, Transparency, and Interest Rate Swap Market Liquidity: Evidence from the Implementation of the Dodd–Frank Act

2018 ◽  
Vol 55 (1) ◽  
pp. 159-192 ◽  
Author(s):  
Evangelos Benos ◽  
Richard Payne ◽  
Michalis Vasios
Keyword(s):  
Interest Rate ◽  
The United States ◽  
Market Liquidity ◽  
Control Group ◽  
Market Quality ◽  
Transaction Data ◽  
Interest Rate Swap ◽  
Interest Rate Swaps ◽  
Clear Increase ◽  
Rate Swap

We use proprietary transaction data on interest rate swaps to assess the effects of centralized trading, as mandated by Dodd–Frank, on market quality. Contracts with the most extensive centralized trading see liquidity metrics improve by between 12% and 19% relative to those of a control group. This is driven by a clear increase in competition between dealers, particularly in U.S. markets. Additionally, centralized trading has caused interdealer trading in EUR swap markets to migrate from the United States to Europe. This is consistent with swap dealers attempting to avoid being captured by the trade mandate in order to maintain market power.

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.

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