This dissertation empirically examines refunding decisions employed by issuers of tax-exempt bonds. Callable bonds contain embedded call options by virtue of provisions in bond indentures that permit the issuing firm to buy back the bond at a predetermined strike price. Such an embedded American call option has two components to its value, the intrinsic value and the time value. The issuer can realize at least as much as the intrinsic value by exercising immediately, when the option is in-the-money. Usually it is optimal for the holder of an in-the money American option to wait rather than exercise immediately, because the option has time value. It is rational for the holder to exercise the option when the total value of the option is no more than the intrinsic value. Option pricing theory can be used to identify two sub-optimal refunding strategies: those that refund too early, and those that refund too late. In such cases the holder incurs losses. I analyze the refunding decisions for two different samples of tax-exempt bonds issued between 1986 and 1993: the first consists of 2,620 bonds that are called, and the second contains 23,976 bonds that are never called. The generalized Vasicek (1977) model in the Heath, Jarrow, and Morton (1992) framework is used to construct binomial trees for interest rates, bond prices, and call option prices. The option pricing lattice is then used to compute the loss in value from sub-optimal refunding strategies, refunding efficiency, and months from optimal time for bonds in these two samples. Results suggest that sub-optimal refunding decisions cause losses to the issuers, which are present across bond and issuer characteristics. For the pooled sample of 26,596 bonds, the loss in value from sub-optimal refunding decisions totaled $7.2 billion, amounting to a loss of about 1.75% of total principal amount. Results indicate that issuers either wait too long to refund or never refund and cannot realize the present value saving of switching a high coupon bond with a low coupon bond, over a longer period of time. These results critically depend on the assumptions of underlying term structure model and are sensitive to model calibrated parameter values. / Ph. D.

Univerzita Karlova v Praze Fakulta sociálních věd Institut ekonomických studií Název disertační práce/ Dissertation title Interest Rate Risk and Liquidity Risk of Banking Books in the Czech Republic Anglický překlad / Title in English Interest Rate Risk and Liquidity Risk of Banking Books in the Czech Republic Autor/ka/ Author Mag. Hana Džmuráňová Rok zpracování/ Year 2021 Školitel / Advisor Doc. Ing. Zdeněk Tůma CSc. Počet stran / No. of pages 197 Abstract in English The thesis Interest Rate Risk and Liquidity Risk of Banking Books in the Czech Republic deals with the management of interest rate risk and liquidity risk stemming from the core banking system purpose - the maturity transformation. Across five articles, we provide comprehensive theoretical description, regulatory background, and develop models for embedded behavioural options of client products such as non-maturity deposits, with special focus on savings accounts in the Czech Republic in one of our case studies, or loans with prepayment option. We apply our models on the major Czech and Slovak banks and we calculate the exposure of those banks to interest rate risk in terms of regulatory guidelines. We derive that all banks in our analysis are positioned to benefit when interest rates increase as demand deposits like current accounts are...

<p>Diss. Stockholm : Handelshögskolan, 2013. Sammanfattning jämte 3 uppsatser.</p>

Submitted by Leonardo Tavares Pereira (leonardotp@fgvmail.br) on 2013-01-15T01:27:39Z No. of bitstreams: 2 EPGE Ficha catalográfica.pdf: 19597 bytes, checksum: 5c69f1150ca0cea1bdd8ef7f9f3626d7 (MD5) Tese final Leonardo T Pereira.pdf: 411902 bytes, checksum: f294706b82f398a75075c8bccb30514f (MD5) / Approved for entry into archive by Marcia Bacha (marcia.bacha@fgv.br) on 2013-09-10T13:27:35Z (GMT) No. of bitstreams: 2 EPGE Ficha catalográfica.pdf: 19597 bytes, checksum: 5c69f1150ca0cea1bdd8ef7f9f3626d7 (MD5) Tese final Leonardo T Pereira.pdf: 411902 bytes, checksum: f294706b82f398a75075c8bccb30514f (MD5) / Made available in DSpace on 2013-09-10T13:38:09Z (GMT). No. of bitstreams: 2 EPGE Ficha catalográfica.pdf: 19597 bytes, checksum: 5c69f1150ca0cea1bdd8ef7f9f3626d7 (MD5) Tese final Leonardo T Pereira.pdf: 411902 bytes, checksum: f294706b82f398a75075c8bccb30514f (MD5) Previous issue date: 2010-07-17 / n this work we develop a strategy to price emb edded options. This kind of options exists in a large numb er of deb entures in the Brazilian market. As this market presents a reduced numb er of assets, pricing the emb edded options is necessary so as to increase the numb er of assets available to analysis. As an intermediary step, we need to know when is interesting to the issuer to call the deb enture b efore the expiration date. With this intuit, we prop ose a metho dology to estimate the term structure of the deb entures market based on the mo del of Nelson-Siegel. As an exercise, we apply the prop osed strategy to estimate the emb edded option on the deb enture TSPP22. We observed that the value of this option presented an ascendant b ehavior during the analyzed p erio d. As matter of fact, this deb enture was called by the issuer on February of 2011. / Nesse trabalho desenvolvemos uma estratégia para o apreçamento de opções de recompra Embutidas . Esse tipo específico de opção está presente em um grande número de debêntures no mercado brasileiro. Em função deste mercado apresentar um número reduzido de ativos, o apreçamento destas opções se faz necessário para que tenhamos condições de ampliar a massa de ativos disponíveis para a análise. Como passo intermediário, é preciso determinar quando é interessante para o emissor efetuar o resgate antecipado da debênture. Para este m, propomos uma metodologia para a estimação da estrutura a termo da taxa de juros do mercado de debêntures com base no modelo de Nelson-Siegel.

[pt] Nesta tese, propomos quatro modelos dinâmicos para ajudar as seguradoras e fundos de pensão a medir e gerencias seus fatores de risco e seus planos de anuidade. Nos primeiros dois ensaios, propomos modelos de previsão de ganhos de longevidade de uma população, que é um importante fator de risco. No primeiro artigo, um modelo de séries temporais multivariado usando a abordagem SUTSE (seemingly unrelated time series equation) é proposto para prever ganhos de longevidade e taxas de mortalidade. No segundo artigo, um modelo estrutural multivariado com tendências estocásticas comuns é proposto para prever os ganhos de longevidade de uma população com uma curta série temporal de taxas de mortalidade, usando as informações de uma população relacionada, para qual uma longa série temporal de taxas de mortalidade é disponível. No terceiro artigo, outro importante fator de risco é modelado – taxas de cancelamento. Apresentamos um modelo estocástico multiestágio para previsão das taxas de cancelamento usando simulação de Monte Carlo depois de uma sequência de ajustes GLM, ARMA-GARCH e cópula multivariada ser executada. No quarto artigo, assumindo a necessidade de se avaliar as opções embutidas para manter a solvência dos planos de anuidade, propomos um modelo para mensuração das opções embutidas nos planos unit-linkeds brasileiros. / [en] In this thesis we propose four dynamic models to help life insurers and pension plans to measure and manage their risk factors and annuity plans. In the first two essays, we propose models to forecast longevity gains of a population, which is an important risk factor. In the first paper, a multivariate time series model using the seemingly unrelated time series equation (SUTSE) framework is proposed to forecast longevity gains and mortality rates. In the second paper, a multivariate structural time series model with common stochastic trends is proposed to forecast longevity gains of a population with a short time series of observed mortality rates, using the information of a related population for which longer mortality time series exist. In the third paper, another important risk factor is modeled – surrender rates. We propose a multi-stage stochastic model to forecast them using Monte Carlo simulation after a sequence of GLM, ARMA-GARCH and multivariate copula fitting is executed. Assuming the importance of the embedded options valuation to maintain the solvency of annuity plans, in the fourth paper we propose a model for evaluating the value of embedded options in the Brazilian unit-linked plans.