scholarly journals Effect of correlation on bond prices in short rate models of interest rates

2018 ◽  
Vol 22 (2) ◽  
pp. 89-101
Author(s):  
Zuzana Girová ◽  
Beáta Stehíková
Keyword(s):  
Interest Rates ◽  
Bond Prices ◽  
Short Rate Models

scholarly journals Estimating the Short Rate from the Term Structures in the Vasicek Model

2014 ◽  
Vol 61 (1) ◽  
pp. 87-103
Author(s):  
Jana Halgašová ◽  
Beáta Stehlíková ◽  
Zuzana Bučková
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Calibration Method ◽  
Current Level ◽  
Model Parameters ◽  
Bond Prices ◽  
Vasicek Model ◽  
Term Structures ◽  
Short Rate Models

Abstract In short rate models, bond prices and term structures of interest rates are determined by the parameters of the model and the current level of the instantaneous interest rate (so called short rate). The instantaneous interest rate can be approximated by the market overnight, which, however, can be influenced by speculations on the market. The aim of this paper is to propose a calibration method, where we consider the short rate to be a variable unobservable on the market and estimate it together with the model parameters for the case of the Vasicek model

Corporate Bond Markets

2019 ◽  
pp. 113-130
Author(s):  
Kelly E. Carter
Keyword(s):  
Interest Rates ◽  
Credit Ratings ◽  
Corporate Bonds ◽  
Corporate Bond ◽  
Bond Markets ◽  
Bond Prices ◽  
Wall Street ◽  
Yield Curves ◽  
Bond Portfolios ◽  
The Impact

This chapter covers the fundamentals of corporate bond markets. It begins by highlighting the size and importance of these markets, followed by a discussion of the major types of corporate bonds and the process of issuing bonds. Next, the chapter provides a discussion of important relationships between a bond’s price and market interest rates, including the key observation that bond prices move opposite market interest rates. The next topic focuses on duration and convexity, which are techniques to estimate the dollar and percent changes in bond prices for a given change in market interest rates, followed by a discussion of bond immunization, which is a technique used to protect the value of bond portfolios from adverse changes in market interest rates. The final topics covered concern yield curves, credit ratings, and the impact of the Dodd-Frank Wall Street Reform Act of 2010 on corporate bond markets.

Modeling the term structure of interest rates with general short-rate models

2003 ◽  
Vol 7 (3) ◽  
pp. 323-335 ◽  
Author(s):  
Hideyuki Takamizawa ◽  
Isao Shoji
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Short Rate Models

Stochastic Processes for Interest Rates and Equilibrium Bond Prices

1983 ◽  
Vol 38 (2) ◽  
pp. 635-646 ◽  
Author(s):  
TERRY A. MARSH ◽  
ERIC R. ROSENFELD
Keyword(s):  
Interest Rates ◽  
Stochastic Processes ◽  
Bond Prices

NUMERICAL PROCEDURES FOR A WRONG WAY RISK MODEL WITH LOGNORMAL HAZARD RATES AND GAUSSIAN INTEREST RATES

2013 ◽  
Vol 16 (08) ◽  
pp. 1350049 ◽  
Author(s):  
LESLIE NG
Keyword(s):  
Interest Rates ◽  
Model Calibration ◽  
Risk Model ◽  
Data Availability ◽  
Hazard Rates ◽  
Single Factor ◽  
Default Intensity ◽  
Credit Default ◽  
Short Rate Models ◽  
Intensity Model

In this work, we present some numerical procedures for a wrong way risk model that can be used for credit value adjustment (CVA) calculations. We look at a model that uses a multi-factor Hull–White model for interest rates and a single-factor lognormal Black–Karasinski default intensity model for counterparty credit, where the default intensity driver is correlated with all interest rate drivers. We describe how a trinomial tree-based approach for implementing single factor short rate models by Hull and White (1994) can be modified and used to calibrate the intensity model to credit default swaps (CDSs) in the presence of correlation. We also provide approximate pricing methods for CDS options and single swap contingent CDS contracts. The latter methods could also be used for model calibration purposes subject to data availability.

scholarly journals ANALYSIS OF IMPACT OF YIELD, INTEREST RATES, U.S FED RATES, AND INFLATION ON PRICE OF GOVERNMENT BONDS IN INDONESIA

2020 ◽  
Vol 6 (2) ◽  
pp. 59-74
Author(s):  
Antonius Siahaan ◽  
Julius Peter Panahatan
Keyword(s):  
Emerging Markets ◽  
Interest Rates ◽  
Federal Reserve ◽  
Emerging Market ◽  
Bond Prices ◽  
Government Bonds ◽  
Federal Reserve Bank ◽  
Reserve Bank ◽  
Critical Issues ◽  
Negative Effect

Global factors are increasingly important as a cause of international capital flows. It is almost impossible for emerging markets to protect themselves from external influences on their financial markets. Indonesia as emerging market is influenced by some monetary policies adopted by the U.S Federal Reserve Bank. The plan of tapering and Fed rate increase adopted by the Federal Reserve Bank in the last three years made local currencies turned into the depreciation stage, increasing capital outflow from emerging markets. It created huge impact on government bond prices in Indonesia and can be seen through the relationship of some factors with bond prices. This research analyzes the impacts of BI rates, Fed rates, and inflation rates on six government bonds classified into three periods during November 2013 to October 2016 when tapering and Fed rates became critical issues. It finds that in all periods bond prices are significantly influenced by only BI rates, but BI rates, Fed rates and inflation rate have negative effect on bond prices during the observation period.

scholarly journals INFLUENCE OF INFLATION ON BOND PRICES: A SURVEY OF BONDS LISTED AT THE NAIROBI SECURITIES

2017 ◽  
Vol 1 (2) ◽  
pp. 50-63
Author(s):  
Margaret Ngaruiya ◽  
Dr. Amos Njuguna
Keyword(s):  
Interest Rates ◽  
Negative Impact ◽  
Secondary Data ◽  
National Bureau ◽  
Open Market ◽  
Bond Prices ◽  
Gross Domestic Product Growth ◽  
Monetary Policies ◽  
Correlation And Regression Analysis ◽  
The Government

Purpose: The purpose of this study was to establish the influence of inflation on bond price.Methodology: The research used an explanatory research design. 65 bonds listed in 23 categories at the NSE. The study used secondary data collected from NSE and the (KNBS) Kenya National Bureau of Statistics. A sample of 10 bonds was selected as these bonds were issued in the January 2008 and were still not mature by the 31st December 2012. Standard deviations were calculated for all the variables in the study.  Further statistical analysis was carried out by use of correlation and regression analysis where bond prices were regressed against inflation, exchange rates and economic growth measured using the Kenya’s Gross Domestic Product growth.  The Statistical Package for Social Sciences (SPSS) version 17 was used to conduct the analysis. The findings were presented in form of tables and figures.Results: The study found out that inflation had negative and significant relationship on the bond prices.Unique contribution to theory, practice and policy: This study recommends that investors who are looking to buy into bonds should factor in inflation as this determines the bond prices.  Since inflation has a negative impact on bond prices, the government policy making organ mandated with the control of inflation should pursue measures to reduce the inflation rate. These measures should include monetary policies such as reduce the interest rates, open market operations geared at reducing the amount of money supply in the economy. The government may also pursue contractionary fiscal policy aimed at reducing inflation. These polices would include reducing government spending.

scholarly journals Taux d’intérêt à long terme, martingales, et marchés efficients

2009 ◽  
Vol 55 (3) ◽  
pp. 360-374
Author(s):  
Charles Freedman
Keyword(s):  
Interest Rates ◽  
Empirical Work ◽  
Bond Market ◽  
Bond Markets ◽  
Bond Prices ◽  
Martingale Process ◽  
The Relationship ◽  
Special Case

This note discusses some aspects of the relationship between the hypothesis that long-term bond rates follow a martingale process and the hypothesis that the bond market is efficient. It begins with some mathematics of bond prices and interest rates. It then shows that, except in one special case, the hypothesis that bond rates follow a martingale and that bond markets are efficient are theoretically inconsistent. Some empirical work is then adduced that shows that neither hypothesis is supported by the data. It concludes with some brief comments on the literature relating to this subject and some suggestions for further research.

scholarly journals Perbandingan Sensitivitas Harga Obligasi Berdasarkan Durasi Macaulay dan Durasi Eksponensial dengan Pengaruh Konveksitas (Studi Empiris pada Data Obligasi Korporasi Indonesia yang Terbit Tahun 2015)

2017 ◽  
Vol 10 (1) ◽  
pp. 25
Author(s):  
Di Asih I Maruddani ◽  
Abdul Hoyyi
Keyword(s):  
Empirical Study ◽  
Interest Rates ◽  
Accurate Method ◽  
Corporate Bond ◽  
Bond Pricing ◽  
Bond Price ◽  
Bond Prices ◽  
Natural Logarithm ◽  
Actual Change ◽  
Small Change

Macaulay duration has often been used as a measure of the bond prices sensitivity to changes in interest rates. For a small change in interest rates, the duration provides a good approximation of the actual change in price. As the change in interest rates gets larger, the duration approximation has larger errors. The convexity of bond prices change is often used as a way to improve the accuracy of the approximation. Several authors have pointed out that the natural logarithm of bond price is a better measure of percentage changes in bond prices as interest rates change. Based on this idea, this paper derives an accurate method of estimating percentage bond price changes in response to changes in interest rates, which is called exponential duration. This paper gives new estimation of bond prices using exponential duration with convexity approach. It will be shown that the new estimation bond prices is always more accurate than by Macaulay duration with convexity approach. For empirical study, it is used corporate bond data, which is published by Indonesian Bond Pricing Agency in 2015. The result support the theory that error value of Macaulay duration with convexity is more than the error value of exponential duration with convexity.Keywords:Bond Price, Convexity, Exponential Duration, Macaulay Duration, Modified Duration

scholarly journals CREDIT DERIVATIVES PRICING WITH STOCHASTIC VOLATILITY MODELS

2013 ◽  
Vol 16 (04) ◽  
pp. 1350019 ◽  
Author(s):  
CARL CHIARELLA ◽  
SAMUEL CHEGE MAINA ◽  
CHRISTINA NIKITOPOULOS SKLIBOSIOS
Keyword(s):  
Interest Rates ◽  
Stochastic Volatility ◽  
Numerical Study ◽  
Credit Derivatives ◽  
Credit Default Swaps ◽  
Bond Prices ◽  
Derivatives Pricing ◽  
Defaultable Bond ◽  
Credit Default ◽  
Model Features

This paper proposes a model for pricing credit derivatives in a defaultable HJM framework. The model features hump-shaped, level dependent, and unspanned stochastic volatility, and accommodates a correlation structure between the stochastic volatility, the default-free interest rates, and the credit spreads. The model is finite-dimensional, and leads (a) to exponentially affine default-free and defaultable bond prices, and (b) to an approximation for pricing credit default swaps and swaptions in terms of defaultable bond prices with varying maturities. A numerical study demonstrates that the model captures stylized various features of credit default swaps and swaptions.

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