scholarly journals INTEREST RATES SENSITIVITY ARBITRAGE – THEORY AND PRACTICAL ASSESMENT FOR FINANCIAL MARKET TRADING

2021 ◽  
Vol 19 (01) ◽  
pp. 12-23
Author(s):  
Bohumil Stadnik
Keyword(s):  
Interest Rates ◽  
Financial Market ◽  
Research Methodology ◽  
Yield Curve ◽  
Algorithmic Trading ◽  
Mathematical Definition ◽  
Bond Portfolio ◽  
Definition Of ◽  
Practical Implications ◽  
Implementation Of The Strategy

Purpose – Nowadays popular algorithmic trading uses many strategies which are algoritmizable and promise profitability. This research assess if it is possible successfully use interest rates sensitivity arbitrage in bond portfolio (also known as convexity arbitrage) in financial praxis. This arbitrage is sparsely described in literature and an assessment about its practical success is missing. Research methodology – Methodology steps: mathematical definition of given arbitrage; construction of sufficient portfolio; backtesting on USD zero-coupon curves. Portfolio of two bonds is constructed (theoretically and practically) to have the same Macaulay duration and price, but a different convexity at certain YTM point. Therefore, being long the first bond while shorting the second (of higher convexity) would result in a market-directional bet for parallel zero-coupon yield curve shifts. Findings – To construct practically the portfolio which is sufficient for the convexity arbitrage could be unrealistic on markets with low liquidity; the presumptions necessary to practically succeed are not fulfilled enough to ensure the arbitrage is profitable. Research limitations – The backtesting is limited to USD market, testing other markets is recommended, but different result is not expected. Practical implications – The research helps practitioners considering this strategy for its implementation to algorithmic trading. Originality/Value – New important results for financial practitioners; states that practical and profitable utilization of convexity arbitrage is unrealizable and save costs during implementation of the strategy.

scholarly journals Monetary Policy Surprises over Time

2018 ◽  
Vol 08 (01) ◽  
pp. 1840002 ◽  
Author(s):  
Marcello Pericoli ◽  
Giovanni Veronese
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Interest Rates ◽  
Euro Area ◽  
Yield Curve ◽  
Sovereign Spreads ◽  
Definition Of ◽  
Term Premia ◽  
The Impact ◽  
Over Time

We document how the impact of monetary surprises on euro-area and US financial markets has changed from 1999 to date. We use a definition of monetary policy surprises, which singles out movements in the long-end of the yield curve — rather than those changing nearby futures on the central bank reference rates. By focusing only on this component of monetary policy, our results are more comparable over time. We find a hump-shaped response of the yield curve to monetary policy surprises, both in the pre-crisis period and since 2013. During the crisis years, Fed path-surprises, largely through their effect on term premia, account for the impact on interest rates, which is found to be increasing in tenor. In the euro area, the path-surprises reflect the shifts in sovereign spreads, and have a large impact on the entire constellation of interest rates, exchange rates and equity markets.

What information to measure? How to measure it?

Kybernetes ◽  
2016 ◽  
Vol 45 (5) ◽  
pp. 718-731 ◽  
Author(s):  
Paolo Rocchi
Keyword(s):  
Working Environment ◽  
Philosophical Perspective ◽  
Content Type ◽  
Mathematical Definition ◽  
Concise Report ◽  
Definition Of ◽  
Concept Of Information ◽  
Intuitive Manner ◽  
Practical Implications ◽  
Digital Engineering

Purpose – Thinkers are still debating about the concept of information while engineers prepare astonishing digital appliances. The purpose of this paper is to address the following questions: what concepts do experts adopt in the working environment? What information do they measure? What can be done to help them? Design/methodology/approach – This paper offers a concise report of the researches driven on the problem of the information definition. The report consists of three principal sections. The first section is twofold. On one hand, there are comments on the various information theories; on the other hand, the semiotics concepts (that engineers and professionals use in intuitive manner) are illustrated. Findings – In consequence of the popularity of the semiotic notions – in the second section – the authors define the concept of signifier using the mathematical language, and discuss some features of this mathematical definition. Practical implications – The third section closes the paper with the illustration of some advantages that the mathematical definition of the signifier offers on the practical plane and from the philosophical perspective. Social implications – The ensemble of those advantages provides a bridge between the humanist culture and digital engineering. Originality/value – The theoretical studies on the concept of information seem to be at a standstill. This paper shows how the measurement of the items of information is handy; and various equations can be unified into a comprehensive frame that facilitates the collaboration of experts coming from different areas.

scholarly journals Yield Curve And Its Impact On Discount Rates In The Financial Evaluation Of A Project- Application case in Argentina

2021 ◽  
Vol 4 (2) ◽  
Keyword(s):  
Interest Rates ◽  
Yield Curve ◽  
Investment Project ◽  
Inflation Expectations ◽  
Discount Rates ◽  
Financial Evaluation ◽  
Sovereign Bonds ◽  
Definition Of ◽  
The Empirical Analysis

This paper introduces some theories that attempt to explain the behavior of the “Temporary Structure of Interest Rates” (TSIR), which observe the correlation between various variables of the economy and projected interest rates, which will later serve as a reference for the determination of the discount rates of the projected flows in the economic-financial evaluation of a productive investment project. The empirical analysis focuses on evaluating the required returns on Sovereign Bonds issued in the Argentine Republic in dollar currency, which determine a yield curve that shows high levels of projected inflation expectations, such as high levels in the definition of rates discount of projected flows. Resumen El presente trabajo introduce algunas teorías que intentan explicar el comportamiento de la “Estructura Temporal de las Tasas de Interés” (ETTI), que observan la correlación entre diversas variables de la economía y las tasas de interés proyectadas, que servirá luego como referencia para la determinación de las tasas de descuentos de los flujos proyectados en la evaluación económico financiero de un proyecto de inversión productiva. El análisis empírico se centra en evaluar los rendimientos exigidos en los Bonos soberanos emitidos en la República Argentina en moneda dólar, que determinan una curva de rendimientos que pone en evidencia niveles altos de expectativas de inflación proyectada, como niveles altos en la definición de las tasas de descuento de los flujos proyectados.

scholarly journals Testing the Performance of Cubic Splines and Nelson-Siegel Model for Estimating the Zero-coupon Yield Curve

2016 ◽  
Vol 62 (2) ◽  
pp. 42-50 ◽  
Author(s):  
Eva Lorenčič
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Financial Market ◽  
Real World ◽  
Yield Curve ◽  
Cubic Splines ◽  
Medium Term ◽  
Government Bonds ◽  
The Real ◽  
The Relationship

Abstract Understanding the relationship between interest rates and term to maturity of securities is a prerequisite for developing financial theory and evaluating whether it holds up in the real world; therefore, such an understanding lies at the heart of monetary and financial economics. Accurately fitting the term structure of interest rates is the backbone of a smoothly functioning financial market, which is why the testing of various models for estimating and predicting the term structure of interest rates is an important topic in finance that has received considerable attention for many decades. In this paper, we empirically contrast the performance of cubic splines and the Nelson-Siegel model by estimating the zero-coupon yields of Austrian government bonds. The main conclusion that can be drawn from the results of the calculations is that the Nelson-Siegel model outperforms cubic splines at the short end of the yield curve (up to 2 years), whereas for medium-term maturities (2 to 10 years) the fitting performance of both models is comparable.

scholarly journals Robotizing bond portfolio selection on the Russian debt market on the basis of a modified strategy of riding the yield curve

2021 ◽  
Vol 15 (4) ◽  
pp. 7-21
Author(s):  
Eugene Korobov ◽  
Yulia Semernina ◽  
Alina Usmanova ◽  
Kristina Odinokova
Keyword(s):  
Interest Rates ◽  
Portfolio Selection ◽  
Large Scale ◽  
Yield Curve ◽  
Stock Exchange ◽  
Computer Algorithms ◽  
Holding Period ◽  
Bond Yield ◽  
Bond Portfolio ◽  
Debt Market

The modern global debt market features historically low average interest rates, convergence of yields on bonds with different maturities, an increase of yield curve inversion emergence frequency and a large-scale trend to automate financial decision making. The researchers’ attention in these fields is mainly focused on designing models that describe the state of the debt market as whole or its individual instruments in particular, as well as on risk management methods. At the same time, the specialized literature offers very few works concerning the topic of computer algorithms for bond portfolio selection based on traditional or advanced investment strategies. The aim of the present research is to create a modification of the existing algorithm of riding the yield curve strategy application, employing, first, average bond yield over the holding period instead of traditional bond yield to maturity; second, a developed algorithm for calculating the market spread on bonds; and, third, alternative risk evaluation indicators (compensation coefficients), which allow us to measure objectively price risk, liquidity risk, transaction costs risk and a general risk. The modification and the development of the algorithm for calculating the market spread were carried out using the direct measurement of the result technique, which entails application of the strategy to the data on bond issues received through the Moscow Exchange API. The selection of financial instruments was conducted in all sectors of the Russian debt market: public bonds, sub-federal and municipal bonds, corporate bonds. The modified algorithm enabled us to get extra yield for each selected bond issue, thereby proving the high effectiveness of the technique compared to the traditional strategy. Software implementation of the algorithm can be integrated into any robotized or semi-robotized stock exchange trading application.

Sustainability Disclosure and the Financialization of Social Sustainability

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Daniela Woschnack ◽  
Stefanie Hiss ◽  
Sebastian Nagel ◽  
Bernd Teufel
Keyword(s):  
Content Analysis ◽  
Empirical Study ◽  
Financial Performance ◽  
Financial Market ◽  
Empirical Data ◽  
Qualitative Content Analysis ◽  
Social Sustainability ◽  
Rating Agencies ◽  
Sustainability Disclosure ◽  
Definition Of

Abstract This empirical study explores the financialization of social sustainability driven by sustainability accounting and reporting initiatives (SARIs). Since no globally accepted definition of what social sustainability encompasses exists, the paper asks how social sustainability is translated into the financial market language by SARIs as they provide standards for disclosing corporate non-financial performance and promote their concepts of social sustainability. The paper uses a two-step qualitative content analysis. First, it operationalizes social sustainability based on the empirical data of six sustainability rating agencies. Second, this operationalization is compared with the concepts created by three SARIs. The paper shows significant differences between the concepts of the SARIs and the rating agencies. While the rating agencies altogether interpret social sustainability with 83 distinct aspects, the SARIs, although differently created, use significant reduced concepts where 20% of these aspects are absent. The result of this financialization process could be a simplified and financially determined concept of social sustainability within die socially discourse. The research is limited to social sustainability and its financialization by SARIs. Individual indicators and their way or intensity to capture aspects of social sustainability were not part of the research interest. Further research should investigate the economic and the ecological pillars of sustainability as well as the usage of such financialized concepts within the society and especially by corporations. The paper unfolds the arbitrariness of operationalizing a qualitative phenomenon like social sustainability through the financial system. It discloses the need for looking at the mechanisms behind such processes and at the interests of the actors behind the frameworks. The paper reveals the financialization process driven by SARIs and demonstrates its simplifying effects on the concept of social sustainability. Furthermore, the paper shows that SARIs as metrics for non-financial aspects are troubled with a lack of transparency and a lack of convergence.

A Hull Normal Based Approach for Cylindrical Size Assessment

2011 ◽  
Vol 133 (1) ◽  
Author(s):  
Steven Turek ◽  
Sam Anand
Keyword(s):  
New York ◽  
Least Squares ◽  
Measured Data ◽  
Size Determination ◽  
Mathematical Definition ◽  
Dimensioning And Tolerancing ◽  
Normal Method ◽  
Computational Metrology ◽  
American Society ◽  
Definition Of

Digital measurement devices, such as coordinate measuring machines, laser scanning devices, and digital imaging, can provide highly accurate and precise coordinate data representing the sampled surface. However, this discrete measurement process can only account for measured data points, not the entire continuous form, and is heavily influenced by the algorithm that interprets the measured data. The definition of cylindrical size for an external feature as specified by ASME Y14.5.1M-1994 [The American Society of Mechanical Engineers, 1995, Dimensioning and Tolerancing, ASME Standard Y14.5M-1994, ASME, New York, NY; The American Society of Mechanical Engineers, 1995, Mathematical Definition of Dimensioning and Tolerancing Principles, ASME Standard Y14.5.1M-1994, ASME, New York, NY] matches the analytical definition of a minimum circumscribing cylinder (MCC) when rule no. 1 [The American Society of Mechanical Engineers, 1995, Dimensioning and Tolerancing, ASME Standard Y14.5M-1994, ASME, New York, NY; The American Society of Mechanical Engineers, 1995, Mathematical Definition of Dimensioning and Tolerancing Principles, ASME Standard Y14.5.1M-1994, ASME, New York, NY] is applied to ensure a linear axis. Even though the MCC is a logical choice for size determination, it is highly sensitive to the sampling method and any uncertainties encountered in that process. Determining the least-sum-of-squares solution is an alternative method commonly utilized in size determination. However, the least-squares formulation seeks an optimal solution not based on the cylindrical size definition [The American Society of Mechanical Engineers, 1995, Dimensioning and Tolerancing, ASME Standard Y14.5M-1994, ASME, New York, NY; The American Society of Mechanical Engineers, 1995, Mathematical Definition of Dimensioning and Tolerancing Principles, ASME Standard Y14.5.1M-1994, ASME, New York, NY] and thus has been shown to be biased [Hopp, 1993, “Computational Metrology,” Manuf. Rev., 6(4), pp. 295–304; Nassef, and ElMaraghy, 1999, “Determination of Best Objective Function for Evaluating Geometric Deviations,” Int. J. Adv. Manuf. Technol., 15, pp. 90–95]. This work builds upon previous research in which the hull normal method was presented to determine the size of cylindrical bosses when rule no. 1 is applied [Turek, and Anand, 2007, “A Hull Normal Approach for Determining the Size of Cylindrical Features,” ASME, Atlanta, GA]. A thorough analysis of the hull normal method’s performance in various circumstances is presented here to validate it as a superior alternative to the least-squares and MCC solutions for size evaluation. The goal of the hull normal method is to recreate the sampled surface using computational geometry methods and to determine the cylinder’s axis and radius based upon it. Based on repetitive analyses of random samples of data from several measured parts and generated forms, it was concluded that the hull normal method outperformed all traditional solution methods. The hull normal method proved to be robust by having a lower bias and distributions that were skewed toward the true value of the radius, regardless of the amount of form error.

Interaction, engagement, and perceived interactivity in single-handed interaction

2016 ◽  
Vol 26 (5) ◽  
pp. 1134-1157 ◽  
Author(s):  
Donghee Shin ◽  
Myunggoon Choi ◽  
Jang Hyun Kim ◽  
Jae-gil Lee
Keyword(s):  
Behavioral Intention ◽  
Interaction Techniques ◽  
Content Type ◽  
Thumb Movement ◽  
Wide Range ◽  
Mobile Industry ◽  
Perceived Interactivity ◽  
The Subject ◽  
Definition Of ◽  
Practical Implications

Purpose The purpose of this paper is to examine the effects of interaction techniques (e.g. swiping and tapping) and the range of thumb movement on interactivity, engagement, attitude, and behavioral intention in single-handed interaction with smartphones. Design/methodology/approach A 2×2 between-participant experiment (technological features: swiping and tapping×range of thumb movement: wide and narrow) was conducted to study the effects of interaction techniques and thumb movement ranges. Findings The results showed that the range of thumb movement had significant effects on perceived interactivity, engagement, attitude, and behavioral intention, whereas no effects were observed for interaction techniques. A narrow range of thumb movement had more influence on the interactivity outcomes in comparison to a wide range of thumb movement. Practical implications While the subject of actual and perceived interactivity has been discussed, the issue has not been applied to smartphone. Based on the research results, the mobile industry may come up with a design strategy that balances feature- and perception-based interactivity. Originality/value This study adopted the perspective of the hybrid definition of interactivity, which includes both actual and perceived interactivity. Interactivity effect outcomes mediated by perceived interactivity.

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