Forecasting Spot 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.

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Determinants of Treasury-LIBOR Swap Spreads

Review of Pacific Basin Financial Markets and Policies ◽

10.1142/s0219091505000567 ◽

2005 ◽

Vol 08 (04) ◽

pp. 687-705 ◽

Cited By ~ 3

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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To Raise the Golden Anchor? Financial Crises and Uncertainty During the Great Depression

The Journal of Economic History ◽

10.1017/s0022050700023512 ◽

1999 ◽

Vol 59 (3) ◽

pp. 624-658 ◽

Cited By ~ 7

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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Predicting Interest Rate Volatility

The Journal of Fixed Income ◽

10.3905/jfi.1992.408033 ◽

1992 ◽

Vol 1 (4) ◽

pp. 21-27 ◽

Cited By ~ 4

Author(s):

Robert C. Kuberek

Keyword(s):

Interest Rate ◽

Interest Rate Volatility

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Unanticipated Money Growth, Interest Rate Volatility, and Unemployment in the United States

Review of Economics and Statistics ◽

10.2307/1937912 ◽

1987 ◽

Vol 69 (1) ◽

pp. 144 ◽

Cited By ~ 7

Author(s):

Donald H. Dutkowsky

Keyword(s):

United States ◽

Interest Rate ◽

The United States ◽

Money Growth ◽

Interest Rate Volatility

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Dynamic Relationship between RMB Exchange Rate and Interest Rate Based on VAR-DCC-GARCH Model

E3S Web of Conferences ◽

10.1051/e3sconf/202021403018 ◽

2020 ◽

Vol 214 ◽

pp. 03018

Author(s):

Xuhang Zhao

Keyword(s):

Monetary Policy ◽

Exchange Rate ◽

Interest Rate ◽

Exchange Rate Volatility ◽

Garch Model ◽

Nominal Exchange Rate ◽

Practical Significance ◽

Causality Test ◽

Dynamic Relationship ◽

Interest Rate Volatility

Based on the daily data of Shibor and nominal exchange rate from 2006 to 2019, this paper constructs VAR model and uses Granger causality test and impulse response model to analyze the dynamic relationship between exchange rate and interest rate. Based on the DCC-GARCH model, this paper analyzes the correlation between exchange rate volatility and interest rate volatility, and concludes that there is a weak negative correlation between exchange rate and interest rate. Both exchange rate and monetary policy will have an important impact on China’s economic environment, so it is of great practical significance to study the joint impact of exchange rate and monetary policy.

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