scholarly journals Market Structure, Macroeconomic Shocks, and Banking Risk in Kenya

2016 ◽  
Vol 1 (2) ◽  
pp. 81-113
Author(s):  
Nderitu Kingori
Keyword(s):  
Growth Rate ◽  
Interest Rate ◽  
Market Structure ◽  
Interest Rate Risk ◽  
Risk Exposure ◽  
Economic Shocks ◽  
Macroeconomic Shocks ◽  
Net Interest Margin ◽  
The Interest Rate ◽  
Loan Growth

This paper investigates the effect of changing market structure and macroeconomic shocks on the borrowing and lending risk exposure of Kenyan commercial banks using a GMM estimation approach. Borrowing risk exposure was found not to be persistent, being mainly affected by the degree of concentration and external economic shocks. Interestingly, the results also suggest that changes in the short-term interest rate do not affect the net interest margin, which may imply that bank deposit and lending rates are rigid and that the interest rate channel may be ineffective. The lending risk exposure was found to be persistent, and it was affected by the degree of concentration, internal economic shocks, and external economic shocks. The positive relationship between degree of concentration as well as borrowing and lending risk exposure supports the concentration-fragility view, as the declining franchise value did not lower incentives for making good loans during the study period where the degree of concentration was on a downward trend. Further analysis of the factors contributing to the persistence of lending risk exposure using a PVAR model found that the banks' loan growth rate and the market interest rate were key determinants. The effect of the loan growth rate was about double the effect of interest rate risk, implying that risk taking by some of the medium-sized and small banks is the key determinant of the persistence of lending risk exposure.

scholarly journals Risk Management for Bonds with Embedded Options

Mathematics ◽  
2020 ◽  
Vol 8 (5) ◽  
pp. 790
Author(s):  
Antonio Díaz ◽  
Marta Tolentino
Keyword(s):  
Risk Management ◽  
Interest Rate ◽  
Interest Rates ◽  
Interest Rate Risk ◽  
Interest Rate Models ◽  
Management Measures ◽  
Interest Rate Risk Management ◽  
Embedded Options ◽  
The Interest Rate ◽  
Interest Rate Change

This paper examines the behavior of the interest rate risk management measures for bonds with embedded options and studies factors it depends on. The contingent option exercise implies that both the pricing and the risk management of bonds requires modelling future interest rates. We use the Ho and Lee (HL) and Black, Derman, and Toy (BDT) consistent interest rate models. In addition, specific interest rate measures that consider the contingent cash-flow structure of these coupon-bearing bonds must be computed. In our empirical analysis, we obtained evidence that effective duration and effective convexity depend primarily on the level of the forward interest rate and volatility. In addition, the higher the interest rate change and the lower the volatility, the greater the differences in pricing of these bonds when using the HL or BDT models.

Developing-country resource extraction with asymmetric information and sovereign debt: a theoretical analysis

1997 ◽  
Vol 2 (3) ◽  
pp. 265-289
Author(s):  
JON STRAND
Keyword(s):  
Growth Rate ◽  
Interest Rate ◽  
Asymmetric Information ◽  
Developing Country ◽  
Sovereign Debt ◽  
Resource Extraction ◽  
Probability Of Default ◽  
Rapid Extraction ◽  
The Interest Rate ◽  
Period Model

We consider a two-period model of an indebted developing country endowed with a natural resource whose extraction causes negative global externalities, where the country may borrow in period one and there is asymmetric information about its willingness to service its loans. We show that when the resource is large, the interest rate on new borrowing equals the resource growth rate. A greater initial debt level then leads to reduced new borrowing and more rapid extraction. An outside 'donor' may affect the resource extraction of the country. Donor schemes that tie debt reduction to postponing or abstaining from extraction of the resource are more powerful than non-conditional schemes in reducing the extraction rate for governments that actually repay, but may in some cases lead to a greater probability of default through increased debt. While conditional schemes generally are potentially Pareto-superior to non-conditional ones, the welfare of the borrowing country is higher with non-conditional schemes.

Basel I to Basel III: Impact of Credit Risk and Interest Rate Risk of Banks in India

2018 ◽  
Vol 17 (1_suppl) ◽  
pp. S83-S111 ◽  
Author(s):  
Noor Ulain Rizvi ◽  
Smita Kashiramka ◽  
Shveta Singh
Keyword(s):  
Interest Rate ◽  
Credit Risk ◽  
Interest Rates ◽  
Banking System ◽  
Interest Rate Risk ◽  
Theoretical Background ◽  
Capital Adequacy ◽  
Basel Iii ◽  
Rate Risk ◽  
Net Interest Margin

The study explores the theoretical background of Basel III and investigates the drivers of interest rate risk and credit risk of banks in various parlances, namely, pre and post the financial crisis, phases of implementation and ownership on a sample of 36 listed banks in India. The findings indicate that the high capital adequacy requirement (CAR) exhibits a positive relation with gross non-performing assets (GNPAs) and net interest margin (NIM). This is perhaps one of the major drawbacks of Basel implementation, which may become a cause of lower GDP in the future as explained in the findings of the literature. Originality/value: This article is perhaps the first attempt of its kind to empirically examine the bank-specific, macroeconomic variables and link it with the Basel implementation in the Indian banking system for the time period 2002–2015. This study endeavours to enhance the existing empirical research in the field and give insights into the role of various factors on GNPAs and interest rates (with regards to Indian banks).

scholarly journals Total Return Swap Valuation with Counterparty Risk and Interest Rate Risk

2014 ◽  
Vol 2014 ◽  
pp. 1-12 ◽  
Author(s):  
Anjiao Wang ◽  
Zhongxing Ye
Keyword(s):  
Interest Rate ◽  
Closed Form ◽  
Interest Rate Risk ◽  
Counterparty Risk ◽  
Rate Model ◽  
Change Of Measure ◽  
Market Interest Rate ◽  
Rate Risk ◽  
Interest Rate Model ◽  
The Interest Rate

We study the pricing of total return swap (TRS) under the contagion models with counterparty risk and the interest rate risk. We assume that interest rate follows Heath-Jarrow-Morton (HJM) forward interest rate model and obtain the Libor market interest rate. The cases where default is related to the interest rate and independent of interest rate are considered. Using the methods of change of measure and the “total hazard construction,” the joint default probabilities are obtained. Furthermore, we obtain the closed-form formulas of TRS under different contagion models, respectively.

Sign in / Sign up

Export Citation Format

Share Document