scholarly journals Sovereign Risk Matters: The Effects of Endogenous Default Risk on the Time-Varying Volatility of Interest Rate Spreads

2020 ◽  
Vol 2020 (1276) ◽  
Author(s):  
◽  
Sergio de Ferra ◽  
Enrico Mallucci ◽  
◽  
Keyword(s):  
Interest Rate ◽  
Default Risk ◽  
Time Varying ◽  
Sovereign Risk ◽  
Endogenous Default ◽  
Interest Rate Spreads

scholarly journals Pricing Sovereign Debt in Resource-Rich Economies

2019 ◽  
Vol 19 (240) ◽  
Author(s):  
Thomas McGregor
Keyword(s):  
Interest Rate ◽  
Default Risk ◽  
Sovereign Debt ◽  
Emerging Market ◽  
Sovereign Default ◽  
Oil Price ◽  
Risk Premiums ◽  
Sovereign Spreads ◽  
Sovereign Default Risk ◽  
Interest Rate Spreads

How do oil price movements affect sovereign spreads in an oil-dependent economy? I develop a stochastic general equilibrium model of an economy exposed to co-moving oil price and output processes, with endogenous sovereign default risk. The model explains a large proportion of business cycle fluctuations in interest-rate spreads in oil-exporting emerging market economies, particularly the countercyclicallity of interest rate spreads and oil prices. Higher risk-aversion, more impatient governments, larger oil shares and a stronger correlation between domestic output and oil price shocks all lead to stronger co-movements between risk premiums and the oil price.

scholarly journals Lie-Algebraic Approach for Pricing Zero-Coupon Bonds in Single-Factor Interest Rate Models

2013 ◽  
Vol 2013 ◽  
pp. 1-9 ◽  
Author(s):  
C. F. Lo
Keyword(s):  
Interest Rate ◽  
Algebraic Approach ◽  
Dynamical Symmetry ◽  
Bond Pricing ◽  
Model Parameters ◽  
Time Varying ◽  
Single Factor ◽  
Bond Price ◽  
Interest Rate Models ◽  
Root Model

The Lie-algebraic approach has been applied to solve the bond pricing problem in single-factor interest rate models. Four of the popular single-factor models, namely, the Vasicek model, Cox-Ingersoll-Ross model, double square-root model, and Ahn-Gao model, are investigated. By exploiting the dynamical symmetry of their bond pricing equations, analytical closed-form pricing formulae can be derived in a straightfoward manner. Time-varying model parameters could also be incorporated into the derivation of the bond price formulae, and this has the added advantage of allowing yield curves to be fitted. Furthermore, the Lie-algebraic approach can be easily extended to formulate new analytically tractable single-factor interest rate 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.

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