The Transmission Of Swap Spreads And Volatilities In The International Swap Markets

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The Transmission of Swap Spreads and Volatilities in the International Swap Markets

Author : Young Ho Eom
Publisher :
ISBN 13 :
Total Pages : 37 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis The Transmission of Swap Spreads and Volatilities in the International Swap Markets by : Young Ho Eom

Download or read book The Transmission of Swap Spreads and Volatilities in the International Swap Markets written by Young Ho Eom and published by . This book was released on 2002 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the Japanese yen and U.S. dollar interest rate swap markets during the period 1990-2000, by examining the spreads of the swap rates over comparable treasury yields (on Japanese Government Bonds (JGBs) and U.S. Treasury bonds, respectively) for different maturities. We then analyze the transmission of shocks in the swap spreads and their volatilities from one market to the other. Our main findings are: (1) the correlations between the yen and dollar interest swap spreads are low, indicating that the credit risk factor is country-specific, rather than global in nature, (2) the changes in the dollar interest rate swap spreads quot;Granger-causequot; the changes in the spreads of yen interest rate swaps for the long (10-year) maturities, but the causality does not run the other way, (3) yen swap spreads are highly correlated with the interest rate differentials between the two markets, and the interest rate differentials have a significant impact on subsequent movements in the yen swap spreads, (4) the transmission of the volatility of swap spreads is strong from the dollar to the yen markets and relatively weak in the other direction, and (5) shocks to the dollar swap spread have an asymmetric impact on the volatilities of the spreads in both the yen and dollar swap markets, i.e., an increase in the dollar swap spread leads to higher future volatility of the spreads in both swap markets, but a decrease does not. These empirical results suggest that specific institutional aspects, such as illiquidity and market frictions, may have affected the yen interest swap market more than its dollar counterpart.

International Swap Market Contagion and Volatility

Author : A. S. M. Sohel Azad
Publisher :
ISBN 13 :
Total Pages : 46 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis International Swap Market Contagion and Volatility by : A. S. M. Sohel Azad

Download or read book International Swap Market Contagion and Volatility written by A. S. M. Sohel Azad and published by . This book was released on 2015 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using interest rate swap yield and spread data the linkages and volatility transmission between three major international swap markets: Japan, UK and the US are investigated. The volatilities of the swap yield and spreads are decomposed into long and short term components enabling an assessment to be made of the strength and direction of the volatility transmission process between the three markets. Strength is measured through the dynamic correlation between the long and short-term components, while direction is measured through the causality of these components. The contagion effects of key economic events are also considered. The paper presents three key findings. First, cross-market correlations of both short and long-term components between Japan and the US, and Japan and the UK are very low, which is consistent with weak integration. This would motivate international investors to take advantage of the differential between the lower long-term yields of Japanese Government bonds and the higher long-term yields of US bonds. On the other hand the cross-market correlations between the UK and the US are high, which is consistent with strong integration. Second, contagion exists in both the long and short-term volatility components of the swap spread, but not on the swap rates. Third, in terms of the direction of transmission, the volatility spillovers (both components) are mostly multidirectional between the markets.

What Determines U.S. Swap Spreads?

Author : 3/4dm̀ Kb̤or
Publisher : World Bank Publications
ISBN 13 : 9780821363386
Total Pages : 60 pages
Book Rating : 4.3/5 (633 download)

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Book Synopsis What Determines U.S. Swap Spreads? by : 3/4dm̀ Kb̤or

Download or read book What Determines U.S. Swap Spreads? written by 3/4dm̀ Kb̤or and published by World Bank Publications. This book was released on with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Trading Risk and Volatility in Interest Rate Swap Spreads

Author :
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (834 download)

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Book Synopsis Trading Risk and Volatility in Interest Rate Swap Spreads by :

Download or read book Trading Risk and Volatility in Interest Rate Swap Spreads written by and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines how risk in trading activity can affect the volatility of asset prices. We look for this relationship in the behavior of interest rate swap spreads and in the volume and interest rates of repurchase contracts. Specifically, we focus on convergence trading, in which speculators take positions on a bet that asset prices will converge to normal levels. We investigate how the risks in convergence trading can affect price volatility in a form of positive feedback that can amplify shocks in asset prices. In our analysis, we see empirical evidence of both stabilizing and destabilizing forces in the behavior of interest rate swap spreads that can be attributed to speculative trading activity. We find that the swap spread tends to converge to a long-run level, although trading risk can sometimes cause the spread to diverge from that level. -- convergence trading ; interest rate swaps ; swap spread ; repurchase contracts ; trading risk ; volatility of asset prices

What Determines U.S. Swap Spreads?

Author : Ádám Kóbor
Publisher : World Bank Publications
ISBN 13 :
Total Pages : 64 pages
Book Rating : 4.F/5 ( download)

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Book Synopsis What Determines U.S. Swap Spreads? by : Ádám Kóbor

Download or read book What Determines U.S. Swap Spreads? written by Ádám Kóbor and published by World Bank Publications. This book was released on 2005 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: References p. 45-47.

The Valuation of US Dollar Interest Rate Swaps

Author : Julian Alworth
Publisher :
ISBN 13 :
Total Pages : 50 pages
Book Rating : 4.:/5 (318 download)

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Book Synopsis The Valuation of US Dollar Interest Rate Swaps by : Julian Alworth

Download or read book The Valuation of US Dollar Interest Rate Swaps written by Julian Alworth and published by . This book was released on 1993 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Modeling Swap Spreads in Normal and Stressed Environments

Author : Vineer Bhansali
Publisher :
ISBN 13 :
Total Pages : 28 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Modeling Swap Spreads in Normal and Stressed Environments by : Vineer Bhansali

Download or read book Modeling Swap Spreads in Normal and Stressed Environments written by Vineer Bhansali and published by . This book was released on 2009 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a simple integrated model for the term structure of swap spreads. We begin with a model for explaining the dynamics of the riskless treasury curve in terms of two factors. We add to the basic model additional inputs that describe the evolution of the implied hazard rate intensity for interest rate swaps. Based on the model, we can derive closed form expressions for observables such as the shape of the term structure of swap spreads, term structure of volatilities and correlations. Our model is economically motivated, and is appealing in its simplicity and robustness in being able to explain the dynamics of the swap spread term structure in both normal and stressed markets. We apply the technique to swap-spread term structures for various international markets.

Essays in Volatility and Risk Modelling in Interest Rate Swaps

Author : A.S.M. Sohel Azad
Publisher :
ISBN 13 :
Total Pages : 434 pages
Book Rating : 4.:/5 (11 download)

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Book Synopsis Essays in Volatility and Risk Modelling in Interest Rate Swaps by : A.S.M. Sohel Azad

Download or read book Essays in Volatility and Risk Modelling in Interest Rate Swaps written by A.S.M. Sohel Azad and published by . This book was released on 2011 with total page 434 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis focuses on the linkages between volatility of interest rate swaps (hereafter, IRS) and macroeconomic risk, cross-border linkages of swap markets from two-factor volatility models, and the influence of three additional risk factors on swap spreads. In order to investigate these, the thesis presents three empirical research essays that all revolve around a common theme: volatility and risk modelling in interest rate swaps. First research essay, presented in Chapter 3, explores whether and how the volatility of swap yield curves is related to macroeconomic risk. The methodology in this essay is based on a recent Spline-GARCH model, multivariate regression, principal component analysis and Granger causality. The empirical analysis is conducted on a sample of daily data for the period between 1987 and 2010 from three major swap markets namely, Japan, the UK and the US. The empirical analysis reveals two important findings. First, using "low-frequency" volatility extracted from aggregate volatility shocks of the three swap markets the analysis suggests that this low-frequency IRS volatility has strong and (mostly) positive association with most of the macroeconomic risk proxies. This relationship between the macroeconomic risks and IRS volatility varies slightly across the different swap maturities but is robust to alternative volatility specifications, namely C-GARCH model and model-free realized volatility. This finding is fairly consistent with the argument that the greater the macroeconomic risk the greater is the use of derivative instruments to hedge or speculate. Second, to explore the dynamic interaction including lead-lag relationship, the study finds that it is the low-frequency (IRS) volatility that Granger causes most of the macroeconomic risk proxies. This finding is, nonetheless, consistent with the argument that, as forward looking instrument, IRS has predictive power to forecast the changes in macroeconomic risk. Motivated by these findings, an empirical analysis is done on reverse regression in which macroeconomic risk proxies and their principal components are regressed on low-frequency volatility of swaps. The findings are encouraging for those who would like to use swaps in predicting macroeconomic risk. Second research essay, presented in Chapter 4, explores whether the observed relationship between macroeconomic risk proxies and volatility of swap market can be extended to investigate the cross-border linkages of swap markets. The mixed and inconclusive evidence on volatility transmission and swap market integration motivated this essay to investigate this issue from different approach. In particular, using the decomposed volatilities (long-term and short-term), this essay examines the financial integration and volatility linkages of three major swap markets, namely Japan, the UK and the US. To facilitate empirical investigation, a step-by-step approach is proposed in measuring volatility transmission and financial linkages including dynamic correlations, contagion and causality of volatility components. These findings have important implications for portfolio risk diversifications in swaps.Third research essay, presented in Chapter 5, exploits the puzzle with regard to determinants and components of swap spreads. This essay argues that in addition to default risk and liquidity risk, three risk factors namely, business cycle risk, market skewness risk and correlation risk contain significant information in determining the swap spreads. Using the GMM approach, this essay provides empirical support of risk premia related to these three risk factors in addition to default and liquidity risk premia. The results are robust to sub-sample analysis.

Trading Risk, Market Liquidity, and Convergence Trading in the Interest Rate Swap Spread

Author : John Kambhu
Publisher :
ISBN 13 :
Total Pages : 13 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Trading Risk, Market Liquidity, and Convergence Trading in the Interest Rate Swap Spread by : John Kambhu

Download or read book Trading Risk, Market Liquidity, and Convergence Trading in the Interest Rate Swap Spread written by John Kambhu and published by . This book was released on 2006 with total page 13 pages. Available in PDF, EPUB and Kindle. Book excerpt: While trading activity is generally thought to play a central role in the self-stabilizing behavior of markets, the risks in trading on occasion can affect market liquidity and heighten asset price volatility. This article examines empirical evidence on the limits of arbitrage in the interest rate swap market. The author finds both stabilizing and destabilizing forces attributable to leveraged trading activity. Although the swap spread tends to converge to its fundamental level, it does so more slowly or even diverges from its fundamental level when traders are under stress, as indicated by shocks in hedge fund earnings and the volume of repo contracts. In addition, repo volume falls when convergence trading risk is higher, and reflects shocks that destabilize the swap spread. The behavior of repo volume in particular points to how trading risk affects market liquidity and asset price volatility.

The Impact of Regulatory News and Discount Rate Changes on the Time Varying Volatility of Interest Rate Swap Spreads

Author : Donna Fletcher
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis The Impact of Regulatory News and Discount Rate Changes on the Time Varying Volatility of Interest Rate Swap Spreads by : Donna Fletcher

Download or read book The Impact of Regulatory News and Discount Rate Changes on the Time Varying Volatility of Interest Rate Swap Spreads written by Donna Fletcher and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The explosive growth of the interest rate swap market (as well as the entire derivative market) has drawn regulatory concern. Among the reasons for concern is the belief that the interest rate swap is a risky interest rate management tool. The exposure created by the use of an interest rate swap is a function of unexpected changes in interest rates, regulatory, legal, and accounting documentation. Prior studies that addressed the risk of interest rate swaps have focused on the actual and potential risk of default ensuing from these unexpected changes. While the loss from default is arguably the most important exposure created by the use of interest rate swaps, understanding swap price movements in different market environments facilitates the efficient management of interest rate swap positions, and could therefore reduce the riskiness of this interest rate risk management tool. This study conducts an empirical analysis of the impact of regulatory news and discount rate changes on the time varying volatility of interest rate swap spreads across various maturities.

The Economics of Recent Bond Yield Volatility

Author : C. E. V. Borio
Publisher : Bank for International Settlements
ISBN 13 :
Total Pages : 140 pages
Book Rating : 4.:/5 (318 download)

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Book Synopsis The Economics of Recent Bond Yield Volatility by : C. E. V. Borio

Download or read book The Economics of Recent Bond Yield Volatility written by C. E. V. Borio and published by Bank for International Settlements. This book was released on 1996 with total page 140 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Research Handbook of Financial Markets

Author : Refet S. Gürkaynak
Publisher : Edward Elgar Publishing
ISBN 13 : 1800375328
Total Pages : 533 pages
Book Rating : 4.8/5 (3 download)

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Book Synopsis Research Handbook of Financial Markets by : Refet S. Gürkaynak

Download or read book Research Handbook of Financial Markets written by Refet S. Gürkaynak and published by Edward Elgar Publishing. This book was released on 2023-05-09 with total page 533 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Research Handbook of Financial Markets carefully discusses the histories and current states of the most important financial markets and institutions, as well as explicitly underscoring open questions that need study. By describing the institutional structure of different markets and highlighting recent changes within them, it accurately highlights their evolving nature.

Credit Default Swaps

Author : Marti Subrahmanyam
Publisher : Now Publishers
ISBN 13 : 9781601989000
Total Pages : 150 pages
Book Rating : 4.9/5 (89 download)

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Book Synopsis Credit Default Swaps by : Marti Subrahmanyam

Download or read book Credit Default Swaps written by Marti Subrahmanyam and published by Now Publishers. This book was released on 2014-12-19 with total page 150 pages. Available in PDF, EPUB and Kindle. Book excerpt: Credit Default Swaps: A Survey is the most comprehensive review of all major research domains involving credit default swaps (CDS). CDS have been growing in importance in the global financial markets. However, their role has been hotly debated, in industry and academia, particularly since the credit crisis of 2007-2009. The authors review the extant literature on CDS that has accumulated over the past two decades and divide the survey into seven topics after providing a broad overview in the introduction. The second section traces the historical development of CDS markets and provides an introduction to CDS contract definitions and conventions. The third section discusses the pricing of CDS, from the perspective of no-arbitrage principles, structural, and reduced-form credit risk models. It also summarizes the literature on the determinants of CDS spreads, with a focus on the role of fundamental credit risk factors, liquidity and counterparty risk. The fourth section discusses how the development of the CDS market has affected the characteristics of the bond and equity markets, with an emphasis on market efficiency, price discovery, information flow, and liquidity. Attention is also paid to the CDS-bond basis, the wedge between the pricing of the CDS and its reference bond, and the mispricing between the CDS and the equity market. The fifth section examines the effect of CDS trading on firms' credit and bankruptcy risk, and how it affects corporate financial policy, including bond issuance, capital structure, liquidity management, and corporate governance. The sixth section analyzes how CDS impact the economic incentives of financial intermediaries. The seventh section reviews the growing literature on sovereign CDS and highlights the major differences between the sovereign and corporate CDS markets. The eighth section discusses CDS indices, especially the role of synthetic CDS index products backed by residential mortgage-backed securities during the financial crisis. The authors close with our suggestions for promising future research directions on CDS contracts and markets.

International Convergence of Capital Measurement and Capital Standards

Author :
Publisher : Lulu.com
ISBN 13 : 9291316695
Total Pages : 294 pages
Book Rating : 4.2/5 (913 download)

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Book Synopsis International Convergence of Capital Measurement and Capital Standards by :

Download or read book International Convergence of Capital Measurement and Capital Standards written by and published by Lulu.com. This book was released on 2004 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Covered Interest Parity Deviations: Macrofinancial Determinants

Author : Mr.Eugenio M Cerutti
Publisher : International Monetary Fund
ISBN 13 : 1484395212
Total Pages : 36 pages
Book Rating : 4.4/5 (843 download)

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Book Synopsis Covered Interest Parity Deviations: Macrofinancial Determinants by : Mr.Eugenio M Cerutti

Download or read book Covered Interest Parity Deviations: Macrofinancial Determinants written by Mr.Eugenio M Cerutti and published by International Monetary Fund. This book was released on 2019-01-16 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: For about three decades until the Global Financial Crisis (GFC), Covered Interest Parity (CIP) appeared to hold quite closely—even as a broad macroeconomic relationship applying to daily or weekly data. Not only have CIP deviations significantly increased since the GFC, but potential macrofinancial drivers of the variation in CIP deviations have also become significant. The variation in CIP deviations seems to be associated with multiple factors, not only regulatory changes. Most of these do not display a uniform importance across currency pairs and time, and some are associated with possible temporary considerations (such as asynchronous monetary policy cycles).

Fixed Income Securities

Author : Bruce Tuckman
Publisher : John Wiley & Sons
ISBN 13 : 111813396X
Total Pages : 640 pages
Book Rating : 4.1/5 (181 download)

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Book Synopsis Fixed Income Securities by : Bruce Tuckman

Download or read book Fixed Income Securities written by Bruce Tuckman and published by John Wiley & Sons. This book was released on 2011-10-13 with total page 640 pages. Available in PDF, EPUB and Kindle. Book excerpt: Fixed income practitioners need to understand the conceptual frameworks of their field; to master its quantitative tool-kit; and to be well-versed in its cash-flow and pricing conventions. Fixed Income Securities, Third Edition by Bruce Tuckman and Angel Serrat is designed to balance these three objectives. The book presents theory without unnecessary abstraction; quantitative techniques with a minimum of mathematics; and conventions at a useful level of detail. The book begins with an overview of global fixed income markets and continues with the fundamentals, namely, arbitrage pricing, interest rates, risk metrics, and term structure models to price contingent claims. Subsequent chapters cover individual markets and securities: repo, rate and bond forwards and futures, interest rate and basis swaps, credit markets, fixed income options, and mortgage-backed-securities. Fixed Income Securities, Third Edition is full of examples, applications, and case studies. Practically every quantitative concept is illustrated through real market data. This practice-oriented approach makes the book particularly useful for the working professional. This third edition is a considerable revision and expansion of the second. Most examples have been updated. The chapters on fixed income options and mortgage-backed securities have been considerably expanded to include a broader range of securities and valuation methodologies. Also, three new chapters have been added: the global overview of fixed income markets; a chapter on corporate bonds and credit default swaps; and a chapter on discounting with bases, which is the foundation for the relatively recent practice of discounting swap cash flows with curves based on money market rates.

Proceedings of the International Workshop on Finance 2011. Doshisha University, Kyoto, Japan. 3-4 August 2011

Author : Akihiko Takahashi
Publisher : World Scientific
ISBN 13 : 981440733X
Total Pages : 231 pages
Book Rating : 4.8/5 (144 download)

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Book Synopsis Proceedings of the International Workshop on Finance 2011. Doshisha University, Kyoto, Japan. 3-4 August 2011 by : Akihiko Takahashi

Download or read book Proceedings of the International Workshop on Finance 2011. Doshisha University, Kyoto, Japan. 3-4 August 2011 written by Akihiko Takahashi and published by World Scientific. This book was released on 2012-05-21 with total page 231 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is the Proceedings of the International Workshop on Finance 2011, held in Kyoto in the summer of 2011 with the aim of exchanging new ideas in financial engineering among researchers from various countries from both academia and industry. The workshop was held as a successor to the Daiwa International Workshop (2004OCo2008), and the KIER-TMU International Workshop (2009OCo2010). This workshop was organized by the Center for Advanced Research in Finance (CARF), Graduate School of Economics, the University of Tokyo, and Graduate School of Social Sciences, Tokyo Metropolitan University OCo and co-organized by Life Risk Research Center, Doshisha University. The workshop serves as a bridge between academic researchers and practitioners. This book contains about fifteen papers, all refereed, representing the presentations at the workshop. The papers address state-of-the-art techniques in financial engineering."