Protection against inflation is an essential part of the today&#039 / s financial markets, particularly in high-inflation economies. Hence, nowadays inflation indexed instruments are being increasingly popular in the world financial markets. In this thesis, we focus on pricing of the inflation-indexed bonds which are the unique inflation-indexed instruments traded in the Turkish bond market. Firstly, we review the Jarrow-Yildirim model which deals with pricing of the inflation-indexed instruments within the HJM framework. Then, we propose a pricing model that is an extension of the Jarrow-Yildirim model. The model allows instantaneous forward rates, inflation index and bond prices to be driven by both a standard Brownian motion and a finite number of Poisson processes. A closed-form pricing formula for an European call option on the inflation index is also derived.

The primary purpose of this study is to test the effects of inflation targeting in Turkey in terms of providing stability in the financial system by lowering the volatility in the Turkish stock market. Although there are many factors other than monetary policy which can affect stock market volatility, this study examines whether the volatility due to monetary policy can be reduced by increasing the accuracy of investors&rsquo / expectations about the central bank&rsquo / s future actions. In the first part, a &ldquo / Volatility Analysis&rdquo / is conducted for three sub-periods including the pre- and post-periods of the implementation of inflation targeting in order to see whether the volatility in the Istanbul Stock Exchange changed over time. Second, an &ldquo / Announcement Effect Analysis&rdquo / is carried out by using the central bank&rsquo / s interest rate and inflation rate announcement dates in order to evaluate how investors&rsquo / expectations react to a change in these rates during period from 2002 to 2007. Finally, a &ldquo / Combined Analysis&rdquo / is done in order to examine the relationship between the returns in the Turkish stock market and the surprise caused by the realized interest and inflation rates being different from their expected values. The empirical findings about the level of volatility indicate that there is a decline in volatility of the Istanbul Stock Exchange returns when volatility is compared on a pre- and post-policy period basis. Also, it is found that the announcement effect was present, meaning interest rate announcements generally came as a surprise to stock market participants. However, this announcement effect has a notably decreasing trend from 2002 to 2007 which is another evidence of the inflation targeting regime&rsquo / s success at reducing stock market volatility. Finally, the &ldquo / combined analysis&rdquo / shows that CBT&rsquo / s power to effect stock returns and to direct investors&rsquo / expectations increases from 2002 to 2007.

This study aims to develop business failure prediction models using the data of selected firms from ISE markets. The sample data comprise ten selected financial ratios for 27 non-going concerns (failed businesses) and paired 27 going concerns. Two non-parametric classification methods are used in the study: Artificial Neural Networks (ANN) and Decision Trees. The classification results show that there is equilibrium in the classification of the training samples by the models, but ANN model outperform the decision tree model in the classification of the testing samples. Further, the potential usefulness of ANN and Decision Tree type data mining techniques in the analysis of complex and non-linear relationships are observed.

The mortgage system has been used for many years in many countries of the world. Although the system has undergone many changes over the passing years, the basics remain the same. So, it can be thought that the earlier systems form the basis of today&rsquo / s mortgage system even though it represents some differences in practice among the countries. However, this system is very new for Turkish financial market as compared with developed countries. The aim of this study is estimating the default and prepayment risk of mortgage contract and pricing the contract in emerging markets like Turkey. In this study, a classical option pricing technique based on Cox, Ingersoll and Ross [8] is used in order to evaluate Turkish fixed-rate mortgages. In this methodology, the spot interest rate and the house price are used as state variables and it is assumed that the termination decision of mortgage is driven by a economic rationale. Under this framework, the model evaluates the embedded options, namely prepayment and default options, and the future payments which corresponds to the mortgage monthly payments. Another aim of this study is the pricing of mortgage insurance policy which has not been used yet in Turkish mortgage market but thought as potential derivative in this market. Therefore, the model used in the study also provides values for mortgage insurance policy. The partial differential equation which is derived for the mortgage, its components and mortgage insurance policy does not have closed form solutions. To cope with this problem, an explicit finite difference method is used to solve the partial differential equation. Numerical results for the value of mortgage-related assets are determined under different economic scenarios. Results obtained in the basic economic scenario show that Turkish banks apply lower contract rates as compared with the optimal ones. This observation indicates that the primary mortgage market in Turkey is still in its infancy stage. Numerical results also suggest that it is beneficial for the lenders to have mortgage default insurance, especially for the high LTV ratio mortgages.

This study investigates the time varying behavior of the betas (systematic risk) for the Turkish REIT sector in an attempt to identify whether the betas for the Turkish REITs are stable and if not whether the declining trend valid for the REIT betas of many developed and developing countries is also observed for the Turkish REITs. Three different techniques / namely, Diagonal BEKK (DBEKK) GARCH model, the Schwert and Seguin model and the Kalman Filter algorithm, are employed in order to estimate and analyze the time varying betas of the Turkish REIT sector over the period 2002-2009. The empirical results suggest that, similar to many other countries, betas are not stable in the Turkish REIT sector. The general view of a declining beta trend for the REITs appears to prevail for Turkish REITs as well, reinforcing the defensive characteristics of these publicly traded real estate companies. Comparing the relative forecast accuracy of the three techniques employed, Schwert and Seguin model performs the worst both for weekly and daily data / whereas the Kalman Filter and the DBEKK Garch models provide the lowest forecast errors for the weekly and the daily data, respectively. This study also shows that the use of the data sets with different frequency could lead to different empirical findings.

An efficient housing finance system has significant importance both in meeting the housing needs of individuals and in reinforcing the development of the construction, finance and other related sectors of an economy. Today, developed countries have advanced housing finance systems in which funds flow from savers to home-buyers by the mortgage markets. On the other hand, despite its recognized economic and social importance, housing finance often remains under-developed in developing countries mainly due to the lack of macroeconomic stability. Turkey, being a developing country, has made an important step towards the development of a mortgage system with the passage of the new Mortgage Law by the Parliament. Accordingly, the purpose of this thesis is to examine the applicability of mortgage system in Turkey. For this purpose, housing finance systems of some developed and developing countries are reviewed, and the housing finance system in Turkey is explained. Further, causality between the total amount of housing loans issued, inflation and nominal interest rates in Turkey is analyzed with the Toda-Yamamoto VAR approach. VAR analysis shows the negative impact of nominal interest rates on the total amount of housing loans issued in Turkey. To sum up, considering its economic and social environment, Turkey has adapted best international experiences, and it is possible for a mortgage system to develop in the country by the new mortgage legislation combined with the lower interest rates as inflation declines.

Inflation indexed instruments are designed to help protect investors against the changes in the general level of prices. So, they are frequently preferred by investors and they have become increasingly developing part of the market. In this study, firstly, the HJM model and foreign currency analogy used to price of inflation indexed instruments are investigated. Then, the HJM model is extended with finite number of Poisson process. Finally, under the extended HJM model, a pricing derivation of inflation indexed swaps, which are the most liquid ones among inflation indexed instruments in the market, is given.

It has been widely accepted that people do not always behave rationally when making decisions. However, cognitive biases are still of interest to a relatively small group (mostly working in the area of psychology) even though they have been introduced to a wider audience by Tversky and Kahneman&rsquo / s article in Science in 1974. It has already been shown that behavioral biases affect most decisions of people / therefore, they have an important role in a wide range of fields, from financial marketing to gambling. The purpose of this study is to investigate some cognitive biases (anchoring, reference point, probability judgment and risk propensity) in Turkey. In brief, anchoring bias is the fallacious effect of anchor values on decision making process, the presence of reference point bias proves that people are excessively affected by comparisons, probability judgment bias is the erroneous evaluation of probabilities, and risk propensity bias is the fallacious effect of the risk propensity levels on decision making processes. The relationships of these biases with individual cognitive ability levels and socioeconomic variables are also inspected. The data are collected by using a survey that is composed of the related measures which are taken from previous surveys in the literature. The sample is composed of a large number of participants (1575) from a wide range of socioeconomic statuses, from students to working professionals to retired individuals. The results lend support to the presence of a reference point bias, and an effect of risk propensity levels on decisions. However, an evidence which supports anchoring and probability judgment biases are failed to be found at a significant level. A significant relationship between cognitive ability level and risk propensity level is found. Moreover, demographic variables are also found to have an effect on the selected biases and cognitive ability.

This study examines the market reaction to rights offering announcements in Turkey. Even though the topic is extensively studied in the finance literature, there is still research going on for emerging markets. The first part of this study measures market reaction to rights offering announcements for six different information arrival dates. The results are significantly negative except for the case of the announcement of the rights offering period. Additionally, the sample is divided into two sub-periods as before and after the 2001 crisis. The results show that there is a significant difference in market reaction and this difference is attributed to the change in economic policy after the 2001 crisis. The second part of the study examines the determinants of this market reaction and the findings suggest that bonus issues are positively related and there is also evidence that firms time their equity issues. The third part analyzes the long term performance of equity issuing firms in two subgroups as financial and non-financial firms. The results provide evidence of a negative performance and this finding is consistent with the results of previous studies.

ABSTRACT FINANCIAL STRATEGIC PLANNING AND KNOWLEDGE MANAGEMENT: A COMPARATIVE CASE STUDY ON TURKISH BANKING SECTOR DURTAS BASPINAR, Canan Pelin M.Sc., Science and Technology Policy Studies Supervisor: Dr. Nusret G&uuml / &ccedil / l&uuml / September 2012, 103 pages It is not easy to set up a knowledge management system (KMS) in banking due to the size of large services, the variety of products, dealing with large information, serving under high cost pressure and highly competitive market conditions. This thesis proposes that strategic management is a knowledge processing outcome, and should be an integral part of the financial strategic planning (FSP), which is essential in the agility of financial organizations.. This thesis will explore a FSP model that is developed by merging and integrating the two models &ldquo / The new knowledge management&rdquo / (Firestone &amp / McElroy, 2003) and &ldquo / APQC Process Classification Framework&rdquo / (APQC, 2011). In light of the merged models a measurable indicator set is defined based on the literature and the researcher&rsquo / s personal experience. To validate the thesis, two case studies have been carried out by using qualitative and a participatory approach in one foreign owned and one jointly controlled bank in Turkey in order to validate the model. Since the case studies consist of specific information on the studied banks, the details are presented separately in a technical paper. The main findings of the case studies show that two different knowledge management (KM) approaches &ldquo / The new knowledge management&rdquo / and &ldquo / APQC Process Classification Framework&rdquo / can be combined in a unified model which can be used to increase agility in turbulent economic environments.