Death,Taxes and Short-Term Underperformance: Fixed Income Funds

2015 ◽  
Author(s):  
Brandes Institute
Keyword(s):  
Fixed Income ◽  
Short Term ◽  
Death Taxes

Death, Taxes, and Short-Term Underperformance: Fixed Income Funds

2007 ◽  
Author(s):  
Brandes Institute
Keyword(s):  
Fixed Income ◽  
Short Term ◽  
Death Taxes

A theoretical model of jump diffusion-mean reversion

2017 ◽  
Vol 23 (3) ◽  
pp. 537-554
Author(s):  
Anindya Chakrabarty ◽  
Zongwei Luo ◽  
Rameshwar Dubey ◽  
Shan Jiang
Keyword(s):  
Monte Carlo Simulation ◽  
Monte Carlo ◽  
Theoretical Model ◽  
Interest Rate ◽  
Mean Reversion ◽  
Jump Diffusion ◽  
Fixed Income ◽  
Short Term ◽  
Content Type ◽  
Better Than

Purpose The purpose of this paper is to develop a theoretical model of a jump diffusion-mean reversion constant proportion portfolio insurance strategy under the presence of transaction cost and stochastic floor as opposed to the deterministic floor used in the previous literatures. Design/methodology/approach The paper adopts Merton’s jump diffusion (JD) model to simulate the price path followed by risky assets and the CIR mean reversion model to simulate the path followed by the short-term interest rate. The floor of the CPPI strategy is linked to the stochastic process driving the value of a fixed income instrument whose yield follows the CIR mean reversion model. The developed model is benchmarked against CNX-NIFTY 50 and is back tested during the extreme regimes in the Indian market using the scenario-based Monte Carlo simulation technique. Findings Back testing the algorithm using Monte Carlo simulation across the crisis and recovery phases of the 2008 recession regime revealed that the portfolio performs better than the risky markets during the crisis by hedging the downside risk effectively and performs better than the fixed income instruments during the growth phase by leveraging on the upside potential. This makes it a value-enhancing proposition for the risk-averse investors. Originality/value The study modifies the CPPI algorithm by re-defining the floor of the algorithm to be a stochastic mean reverting process which is guided by the movement of the short-term interest rate in the economy. This development is more relevant for two reasons: first, the short-term interest rate changes with time, and hence the constant yield during each rebalancing steps is not practically feasible; second, the historical literatures have revealed that the short-term interest rate tends to move opposite to that of the equity market. Thereby, during the bear run the floor will increase at a higher rate, whereas the growth of the floor will stagnate during the bull phase which aids the model to capitalize on the upward potential during the growth phase and to cut down on the exposure during the crisis phase.

A New Model for Interest Rates

1998 ◽  
Vol 01 (02) ◽  
pp. 195-226 ◽  
Author(s):  
D. Epstein ◽  
P. Wilmott
Keyword(s):  
Interest Rates ◽  
Cash Flows ◽  
Fixed Income ◽  
Hyperbolic Partial Differential Equation ◽  
Present Value ◽  
Short Term ◽  
First Order ◽  
Bond Options ◽  
New Perspective ◽  
Set Up

There are many theories and models underlying the valuation of fixed income security portfolios. This work addresses the problem from a new perspective: the objective is to find a lower bound for the value of a portfolio of cash flows. We set up conditions for the evolution of a short-term interest rate and value a liability using its present value. We formulate a first-order nonlinear hyperbolic partial differential equation for the value, V, of the portfolio. We explore the solution of this equation and then hedge our portfolio with market-traded zero-coupon bonds of known value. We include some salient examples — generating the Yield Envelope and valuing caps, floors and bond options.

scholarly journals Akad Musyarakah Dalam Pembiayaan Perdagangan Dan Pertanian Di Lembaga Keuangan Mikro Agribisnis (LKMA) Syariah Barokah

2020 ◽  
Vol 7 (2) ◽  
pp. 193-204
Author(s):  
Mas'ut Mas'ut ◽  
Soim Soim
Keyword(s):  
Profit Sharing ◽  
Islamic Banking ◽  
Fixed Income ◽  
Short Term ◽  
Business Partners ◽  
Development Of Partnership

Partnership-based products with profit sharing such as Musharaka as the competitive superior product of Islamic banking have not experienced growth like other products. The lack of development of partnership-based products in Islamic banking that is more flexible in terms of term, especially long-term financing, causes Islamic banking to have more of its products based on fixed income financing which is similar to the conventional pattern which uses a fixed income structure and tends to be short term. and medium. At LKMA Syariah Barokah, it has a superior product, namely musyarakah. Musyarakah is a profit sharing contract when two or more entrepreneurs holding funds / capital work together as business partners, financing new or existing business investments. Business partners who own capital are entitled to participate in company management, but it is not mandatory. The parties can divide the work of managing the business according to their agreement and can also ask for salaries / wages for the labor and expertise they devote to the business

scholarly journals Steadiness of expectation theory measured by swaption curve

2021 ◽  
Vol 3 (2.1) ◽  
pp. 6-26
Author(s):  
Antonio Ruben Santillan Pashma
Keyword(s):  
Interest Rate ◽  
Financial Crisis ◽  
Interest Rates ◽  
Banking Sector ◽  
Fixed Income ◽  
Short Term ◽  
High Volatility ◽  
Expectation Theory ◽  
One Year ◽  
Premium Risk

The financial crisis that broke out in mid-2007 has spread in the existing financial system with great instability favoring the devaluation of currencies with the fall in market interest rates. This has caused potential investors to become more risk-averse and therefore, look for financial products, although lower profitability, also poses less risk. Following this line, it is the Fixed Income assets that have acquired greater prominence in these times of crisis.  This article highlights the strength of the expectation theory in different tranches, using EURIBOR rate to determine implicit forwards, and estimate the price of a one-year swap contract with 3 months of maturity,  and comparing in every moment with the real prices of swap as a benchmark. SWAP is the bigger derivative inside of the group of Fixed Income Assets.  After the quantitative analyst, it has been observed how the theory prevails of sceneries of low volatility but falls on sceneries when the volatility starts to increase. Introduction.  One of the basic assumptions about financial theory is talking about the expectations theory. Since the middle of the eighties, this theory has been used as the unbiased estimator to calculate the swap interest rate in the base of the spot bank interest rate. Aim. Quantitativa analyst of the steadiness of expectations theory in differents economical cycles, using the European Central bank as the source to get hold of the EURIBOR spot rates for 3 months, 6 months, 9 months, and 12months from 2004 to 2016. Results. During the periods before the crisis 2007, the prices of the IRSWAP are almost adjusted between the market and what the financial theory says. The situation starts to change after the financial crisis when the volatility of the market starts to increase due to the instability of the banking sector and traders started with speculations strategies forgetting the aim of hedging, operating, new positions the majority in the short term. Conclusion. Whether for speculative reason or interventions actions of the monetary authority, the theory e “EXPECTATIONS THEORY”, it is not an efficient predictor with out using a premium risk, during the periods of high volatility.

Death, Taxes, and Short-Term Underperformance: Non-U.S. Funds

2007 ◽  
Author(s):  
Brandes Institute
Keyword(s):  
Short Term ◽  
Death Taxes

scholarly journals Um Modelo Unificado para a Previsão da Estrutura a Termo de Taxa de Juros

2018 ◽  
Vol 16 (2) ◽  
pp. 337
Author(s):  
Ailton Cassettari ◽  
Jose Raymundo Novaes Chiappin
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Empirical Evaluation ◽  
Future Price ◽  
Fixed Income ◽  
Short Term ◽  
Hjm Model ◽  
Analytical Expressions ◽  
Future Date ◽  
Over Time

The focus of the paper is to present a new methodology for forecasting the Term Structure of Interest Rates (ETTJ). The objective is to answer the question: given the ETTJ curve at any given time, what is the ETTJ at a future date? Thus, we seek to construct an analytical expression for the prediction of an entire curve and not only for a given future price of any asset. This objective requires a predominantly analytical and theoretical approach rather than empirical or econometric. The characteristic of this approach is the development of a "hybrid" model, describing the evolution and dynamics of the ETTJ curve over time, combining three elements: a particular version of the HJM model, the Nelson-Siegel-Svensson parameterization, and an independent modeling of the short-term rate, via Hull-White model. As results are obtained analytical expressions for quantities of importance in the fixed income markets. Not being the focus of this work, the empirical evaluation appears only as an illustration, and a more rigorous empirical analysis is left for another article.

Death, Taxes and Short-Term Underperformance: Emerging Market Funds

2014 ◽  
Author(s):  
Brandes Institute
Keyword(s):  
Emerging Market ◽  
Short Term ◽  
Death Taxes

Death, Taxes and Short-Term Underperformance: International Funds

2014 ◽  
Author(s):  
Brandes Institute
Keyword(s):  
Short Term ◽  
Death Taxes

The Dynamics of the U.S. Overnight Triparty Repo Market

FEDS Notes ◽  
2021 ◽  
Vol 2021 (2948) ◽  
Author(s):  
Mark E. Paddrik ◽  
◽  
Carlos A. Ramírez ◽  
Matthew J. McCormick ◽  
◽  
...  
Keyword(s):  
Financial System ◽  
Pivotal Role ◽  
Fixed Income ◽  
Normal Functioning ◽  
Short Term ◽  
Over The Counter ◽  
Market Participants ◽  
The U.S ◽  
Fixed Income Markets

The overnight segment of the triparty repurchase agreement (repo) market plays a pivotal role in the normal functioning of the U.S. financial system by acting as an important source of secured short-term funding and supporting the liquidity of key fixed income markets, including U.S. Treasury and agency securities. This over-the-counter market accounts for over $1 trillion in daily transactions and provides a unique venue in which a diverse set of market participants invest their cash as well as obtain short-term funding.

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