The Heath-Jarrow-Morton (HJM) model represents the latest in powerful arbitrage-free technology for modeling the term structure and managing interest rate risk. Yet risk management strategies in the form of immunization portfolios using duration, convexity, and M-square are still widely used in bond portfolio management today. This study addresses the question of how traditional risk measures and immunization strategies perform when the term structure evolves in the HJM manner. Using Monte Carlo simulation, I analyze four HJM volatility structures, four initial term structure shapes, three holding periods, and two traditional immunization approaches (duration-matching and duration-and-convexity-matching). I also examine duration and convexity measures derived specifically for the HJM framework. In addition I look at whether portfolios should be constructed randomly, by minimizing their M-squares or using barbell or bullet structures. I assess immunization performance according to three criteria. One of these criteria corresponds to active portfolio management, and the other two correspond to passive portfolio management. Under active portfolio management, an asset portfolio is successfully immunized if its holding period return is greater than or equal to the holding period return of the liability portfolio. Under passive portfolio management, the closer the returns of the asset portfolio to the returns of the liability portfolio, the better the immunization performance. The results of the study suggest that, under the active portfolio management criterion, and with the duration matching strategy, HJM and traditional duration measures have similar immunization performance when forward rate volatilities are low. There is a substantial deterioration in the immunization performance of traditional risk measures when there is high volatility. This deterioration is not observed with HJM duration measures. These results could be due to two factors. Traditional risk measures could be poor risk measures, or the duration matching strategy is not the most appropriate immunization approach when there is high volatility because yield curve shifts would often be large. Under the active portfolio management criterion and with the duration and convexity matching strategy, the immunization performance of traditional risk measures improves considerably at the high volatility segments of the yield curve. The improvement in the performance of the HJM risk measures is not as dramatic. The immunization performance of traditional duration and convexity measures, however, deteriorates at the low volatility segments of the yield curve. This deterioration is not observed when HJM risk measures are used. Overall, with the duration and convexity matching strategy, the immunization performance of portfolios matched with traditional risk measures is very close to that of portfolios matched with the HJM risk measures. This result suggests that the duration and convexity matching approach should be preferred to duration matching alone. Also the result shows that the underperformance of traditional risk measures under high volatility is not due to their being poor risk measures, but rather due to the reason that the duration matching strategy is not an appropriate immunization approach when there is high volatility in the market. Under the passive portfolio management criteria, the performances of traditional and HJM measures are similar with the duration matching strategy. Less than 29% of the duration matched portfolios have returns within one basis point of the target yield, whereas almost all are within 100 basis points of the target yield. These results suggest that the duration matching strategy might not be sufficient to generate cash flows close to those of the target bond. The duration measure assumes a linear relation between the bond price and the yield change, and the nonlinearities that are not captured by the duration measure might be important. When the duration and convexity matching strategy is used, more than 36% of the portfolios are within one basis point of the target with HJM risk measures. This dramatic improvement in the immunization performance of HJM measures is not guaranteed for traditional risk measures. In fact, there are certain cases in which the performance of traditional risk measures deteriorates with the duration and convexity matching strategy. In this respect, choosing the correct risk measure is more important than the immunization strategy when passive portfolio management is pursued. Under active portfolio management criterion, there is no significant difference among bullet, barbell, minimum M-square, and random portfolios with both duration matching and duration and convexity matching strategies. Under the passive portfolio management criterion, bullet portfolios produce closer returns to the target for short holding periods when the duration matching strategy is used. With the duration and convexity matching strategy, bullet, barbell and minimum M-square portfolios produce closer returns to the target for short holding periods. Random portfolios perform as well as bullet, barbell and minimum M-square portfolios for medium to long holding periods. These results suggest that when the duration matching strategy is used, bullet portfolios are preferable to other portfolio formation strategies for short holding periods. When the duration and convexity matching strategy is used, no portfolio formation strategy is better than the other. Under the active portfolio management criterion, minimum M-square portfolios are successfully immunized under each yield curve shape and volatility structure considered. Under the passive portfolio management criterion, minimum M-square portfolios perform better for short holding periods, and their performance deteriorates as the holding period increases, irrespective of the volatility level. This suggests that the performance of minimum M-square portfolios is more sensitive to the holding period rather than the volatility. Therefore, minimum M-square portfolios would be preferred in the markets when there are large changes in volatility. Overall, the results of the study suggest that, under the active portfolio management criterion and with the duration matching strategy, traditional duration measures underperform their HJM counterparts when forward rate volatilities are high. With the duration and convexity matching strategy, this underperformance is not as dramatic. Also no particular portfolio formation strategy is better than the other under the active portfolio management criterion. Under the passive portfolio management criterion, the duration matching strategy is not sufficient to generate cash flows closer to those of the target bond. The duration and convexity matching strategy, however, leads to substantial improvement in the immunization performance of the HJM risk measures. This improvement is not guaranteed for the traditional risk measures. Under the passive portfolio management criterion, bullet portfolios are preferred to other portfolio formation strategies for short holding periods. For medium to long holding periods, however, the portfolio formation strategy does not significantly affect immunization performance. Also, the immunization performance of minimum M-square portfolios is more sensitive to the holding period rather than the volatility. / Ph. D.

Models of the term structure of interest rates play a central role in the modern theory of pricing bonds and other interest rate claims. Term structure models based on the principle of no-arbitrage, especially those of the Heath-Jarrow-Morton (1992) class, have become very popular recently, both with academics and practitioners. Surprisingly however, although the implied volatility function plays a crucial role in these no-arbitrage term structure models, there is little systematic evidence to guide optimal model specification within this broad class. We study the implied volatility in the Heath-Jarrow-Morton framework using Eurodollar futures options data. We estimate a daily time series of forward rates within the HJM framework such that, by construction, the predicted futures prices from our model exactly match the observed futures prices. Next, we estimate a daily time series of volatility parameters such that the sum of squared errors between futures options prices predicted by the model and observed futures options prices is minimized. We use the six different volatility specifications suggested by Amin and Morton (1994) within the HJM class of models to price interest rate claims. Since the volatilities are the only unobservables, we use these models to infer the volatilities from the market prices of Eurodollar futures options over the 1987-1998 periods. The minimized sum of squared errors in the option prices is used as the measure of accuracy of each specific model. Each model differs from the others in its ability to match the market option prices and the time required for the computation. We compare the performances of the six volatility specifications in the accuracy-versus-computation time tradeoff. We document the systematic biases between the model and market prices as a function of option type, maturity, and moneyness. We also examine alternative numerical implementations of HJM models using the six volatility specifications. In particular, we analyze the impact on accuracy and computation time of using different numbers of time-steps. We also examine the effect of using time-steps of varying lengths within the same estimation procedure, and of ordering the time-steps in different ways. / Ph. D.

No / We show that the unified HJM-based approach of constructing Gaussian dynamic term structure models developed by Li, Ye, and Yu (2016) nests most existing GDTSMs as special cases. We also discuss issues of interest rate derivatives pricing under this approach and using integration to construct Markov representations of HJM models.

This study investigates the simultaneous use of interest rate and currency futures markets to hedge the exchange and interest rate risks faced by banks. Banks in this study accept short-term variable rate deposits, hold many different foreign currencies, and make long-term fixed rate loans. The expected utility maximization model shows that in a two-period framework the bank’s optimal simultaneous hedge ratios for risks associated with exchange rate, interest rate, and anticipatory positions are given by the coefficients of the theoretical multivariate multiple regression of returns from trading the (spot) instruments being hedged on those from trading the futures contracts. Unlike previous studies, capital adequacy is shown in this study to be an important factor determining the bank’s optimal futures position. The bank’s decisions on loan extensions and interest rate futures positions are shown to be affected by the existence of foreign exchange operations and the availability of foreign currency futures contracts. It is also shown that the (optimal) hedging decisions anticipated for later time periods influence current decisions, which implies that hedge positions are intertemporally dependent. Based on the theoretical analyses, five testable hypotheses are derived: (i) Capital adequacy irrelevance hypothesis, (ii) Naive-single market hypothesis, (iii) Own market hypothesis, (iv) Intertemporal position irrelevance hypothesis, and (v) International banking hypothesis. These hypotheses are tested using the generalized method of moments procedure. The empirical results show that (a) capital adequacy is highly relevant for the bank’s decision on optimal futures positions, (b) it is not optimal for the bank to take a naive position in the corresponding futures contracts to hedge a specific type of spot position, (c) cross-hedging is necessary to increase hedging performance, (d) the bank’s anticipated positions in foreign currency spot and futures contracts next period affect the current decisions on optimal spot and futures positions, and (e) international banking activity, as it is interrelated with domestic and international credit markets, must be considered when the bank makes decisions on optimal futures positions. Finally, the optimal hedge ratio estimates demonstrate strong evidence that banks should use the futures markets to a substantially greater extent for hedging overall market risk compared to when they hedge each component of market risk separately. / Ph. D.

During a large part of the 2010s Swedish economy was heavily influenced by abnormally low interest rates, which even reached negative territory during several years. This occurrence affected the real estate industry by enabling cheap financing options, thus leading to an expansion in the companies’ debt level. When the interest rates began rising sharply in 2022 the question arose whether real estate firms would be able to uphold a healthy profitability level, or if the returns would be diminished due to the higher cost of debt. This thesis aims to investigate the impact of the interest rate on Swedish real estate companies’ profitability measured by return on equity. Nineteen Swedish real estate companies were analyzed over the period Q1 2015 – Q1 2024 by conducting a quantitative analysis through an Autoregressive Distributed Lag (ARDL) model and a panel data regression model, both of which accounts for short-term and long-term dynamics of the interest rate’s impact over time. The analysis was also divided into two distinct time frames, one with negative interest rates (Q1 2015 – Q1 2022), and one with quickly rising interest rates (Q2 2022 – Q1 2024), in order to be able to compare the impact of the interest rate on the profitability level during different macroeconomic conditions. The capture of time-dependencies was enabled by using both a one quarter lag and a four quarter lag on both the dependent variable and the independent variables. The findings suggest that over all analyzed time frames the level of return on equity is significantly negatively affected by the policy interest rate; however, the interest rate shows a significant lag of influence, indicating that the interest rate level from both one quarter and four quarters ago has an impact on the current level of return on equity. Also, the prior level of profitability significantly correlates with the current return of equity among real estate companies, in both the short term and the long term, which indicates the presence of a momentum effect. The relationship is positive during all time frames and for all lags, except during the Q2 2022 – Q1 2024 time span utilizing one quarter’s lag, where the connection is negative. / Under en stor del av 2010-talet var den svenska ekonomin starkt präglad av onormalt låga räntor, som till och med nådde negativt territorium under flera år. Denna händelse påverkade fastighetsbranschen genom att möjliggöra billiga finansieringsalternativ, vilket ledde till en expansion av företagens skuldnivå. När räntorna började stiga kraftigt 2022 uppstod frågan huruvida fastighetsbolagen skulle kunna upprätthålla en sund lönsamhetsnivå, eller om avkastningen skulle minska på grund av högre skuldkostnader. Denna studie syftar till att undersöka räntans påverkan på svenska fastighetsföretags lönsamhet, mätt genom avkastning på eget kapital. Nitton svenska fastighetsbolag analyserades under perioden Q1 2015 – Q1 2024 i en kvantitativ analys genom en Autoregressive Distributed Lag (ARDL)-modell samt en panelregressionsmodell, vilka båda tar hänsyn till såväl kortsiktig som långsiktig dynamik, vilket möjliggör en undersökning av räntans påverkan över tid. Analysen delades även in i två distinkta tidsspann, det ena med negativa räntor (Q1 2015 – Q1 2022), och det andra med snabbt stigande räntor (Q2 2022 – Q1 2024), för att kunna jämföra räntans påverkan på lönsamheten under olika makroekonomiska förutsättningar. Den tidsberoende aspekten möjliggjordes genom användandet av både ett och fyra kvartals eftersläpning på både den beroende variabeln och de oberoende variablerna. Resultaten från denna studie påvisar att det över alla analyserade tidsperioder finns en signifikant negativ påverkan av räntenivån på lönsamhetsnivån, och att räntan påvisar en effekt på lönsamheten både med ett och fyra kvartals eftersläpning. Den tidigare lönsamhetsnivån har även en signifikant påverkan på den nuvarande lönsamhetsnivån, både på kort och lång sikt, vilket indikerar förekomsten av en momentumeffekt. Denna koppling är positiv över alla tidsspann och gäller för både ett och fyra kvartals eftersläpning, med undantag för perioden Q2 2022 - Q1 2024 med ett kvartals eftersläpning, där förhållandet är negativt.

銀行的利率風險管理是資產負債管理中相當重要的課題，尤其是隨著金融自由化與國際化的發展，同業市場競爭日漸激烈，使銀行利差縮小，獲利能力大不如前，因此如何管理利率風險，避免利率波動對銀行淨值與獲利能力的影響對銀行而言將更形重要。而資訊科技在企業的應用，已從以往輔助性的角色漸漸轉變為增加企業競爭優勢的策略武器。雖然我國金融業引進電腦科技於日常業務處理已有二十年了，但後檯管理作業仍以人工處理為主，如何利用管理資訊系統更有效率的提供相關訊息，已成為各銀行面臨的迫切課題。 　　然而國內雖有一些資產負債管理資訊系統相關的研究，唯對銀行利率風險管理方面的著墨並不深入；也有些關於銀行利率風險管理相關的文獻，但還沒有專門針對銀行利率風險管理結合管理資訊系統方面的探討。所以本文試圖由此方向出發，建立一銀行利率風險管理資訊系統架構，並運用實際銀行的資料於雛型系統上，發現利用銀行利率風險管理資訊系統，將可更有效率的提供相關訊息，並可將計算複雜、具技術性且專門的利率風險衡量方法及避險工具操作模型納入系統中，增加銀行利率風險管理的效率與效能。 / The interest rate risk management is a very important element in the bank Asset Liability Management(ALM). As the higher degree of deregulation and internationalization of financial environment, bank interest rate spread is compressed and the profit is decreased. Interest rate risk management becomes even more important for banks to maximize its net worth or total profit. The advance of information technology(IT) in business has become one of the most important strategic weapon to increase the business competitive edge. Although there have more than 20 years experience of IT on local financial institution, IT has seldom been used to the decision making levels. So, in the near future, how to apply management information systems(MIS) to help bank management has become a major concern. 　　In the past, the research on the bank asset liability management system was less emphasis on the application of MIS on the interest rate risk management. This paper provides a bank interest rate risk management system framework which can help the bank managers to assess the interest rate risk. Finally, a bank's historical data was used to evaluate the prototype system, and the result shows that the prototype system could improve the bank interest rate risk management.

在利率自由化的過程中，貨幣市場利率變化情形較以前劇烈，因此近年來 使得一些需要運用貨幣市場來融通短期資金的廠商與個人較以往面臨更大 的利率變動的風險。本文的主要目的在探討以芝加哥期貨交易所(CBOT)之 美國長期公債期貨合約、十年期公債期貨合約及五年期公債期貨合約及芝 加哥商品期貨交易所(CME) 的美國國庫券期貨、Eurodollar期貨之組合交 叉規避國內商業本票30天期、90天期、 180天期之次級市場的利率風險， 以了解利用國外利率期貨交叉規國內商業本票現貨利率風險的績效及不同 的避險期間與不同的避險比例對避險績效的影響。本研究之採樣期間 自1989年 1月至1992年10月底，並分為兩部份進行實證，一為整體樣本測 試避險模式、另一為樣本外交叉避險模式，且修正自身相關現象。 根據 實證結果，可以得到以下的結論與發現：1.在整體樣本測試交叉避模式之 自身相關迴歸分析中，當避險期間愈長時，則避險績效愈好。2.在樣本外 測試交叉避險模式--最適避險模式之價差迴歸分析與自身相關迴歸分析中 ，可以發現三種商業本票的交叉避險績效均以避險期間較短者擁有較好的 交叉避險績效。3.在樣本外測試交叉避險模式中，所有商業本票不論何種 避險期間，自然避險模式的交叉避險績效均比最適避險模式為差。4.在樣 本外測試交叉避 險模式--最適避險模式之價差迴歸分析與自身相關迴歸 分析中，可以發現所有商業本票，在單一期貨組合的交叉避險績效大致上 皆高於其他期貨組合的交叉避險績效，因此，在從事避險操作時，基於時 間及交易成本的考量，以單一期貨組合從事避險操作較為有利。

This paper estimates the zero coupon yield curve for the Peruvian government bond market. We employ two methods of estimation proposed by Nelson y Siegel (1987) and Svensson (1994). Model performance is evaluated based on criteria of goodness of fit, flexibility and parameter stability, by using alternative objective functions for parameter estimation. The Svensson model shows on average a better adjustment; however, parameter estimates are more unstable when data availability is limited —for example when there is a small number of transactions in the secondary market— in which case is better to use the Nelson y Siegel estimates. At the end of the paper, yield curve estimates are used to derive market expectations of future short term interest rates, that are valuable sources of information for central bank’s monetary policy. / En el presente documento se estiman dos modelos para la curva de rendimiento en soles para el Perú, el modelo de Nelson y Siegel (1987) y el modelo de Svensson (1994). Se compara el desempeño de ambos modelos en términos de ajuste, flexibilidad y estabilidad de sus parámetros, y se evalúan funciones objetivo de estimación alternativas. El modelo de Svensson tiene el mejor ajuste, sin embargo, es más inestable cuando no se dispone de datos suficientes para los diferentes plazos de la curva de rendimiento —por la ausencia de emisiones o de precios cuando la negociación en el mercado secundario es incipiente— en cuyo caso es preferible el uso del modelo de Nelson y Siegel. En la parte final se muestra el uso de las curvas de rendimiento cupón cero estimadas como fuente de información de los bancos centrales sobre las expectativas del mercado para la evolución futura de la tasa interbancaria.

Made available in DSpace on 2016-03-15T19:32:58Z (GMT). No. of bitstreams: 1 Marisa Gomes da Costa.pdf: 2649705 bytes, checksum: 9dfdf2c39e3c4389540dc1f3a8f8d26f (MD5) Previous issue date: 2016-02-01 / This study aims to identify the determinants of Brazil country risk level, during the period from February 1995 to August 2015, based on the deviations from the covered interest rate parity condition. These deviations represent a measure of the risk assumed by an investor who choose to invest in a Brazilian security in Brazil, rather than do it abroad. Using Autometrics, an algorithm for automatic model selection, developed by Doornik (2009), thirty-nine explanatories variables were selected from previous studies. The Brazil country risk level is susceptible to changes in the balance of payments, import by GDP, the deviation covered interest rate parity of the previous period, the inflation rate, the change in exports, total debt per GDP, and external debt by exports. / Este estudo propõe-se a identificar os fatores determinantes do nível do risco Brasil, durante o período de fevereiro de 1995 a agosto de 2015, calculado pelos desvios da condição da paridade coberta de juros. Estes desvios representam a medida do risco assumido por um investidor ao optar investir em um título brasileiro no Brasil, ao invés de fazê-lo no exterior. Utilizando a técnica de seleção automática de modelos com a aplicação do algoritmo Autometrics, desenvolvido por Doornik (2009), trinta e nove variáveis explicativas foram selecionadas a partir de estudos anteriores. O nível do risco Brasil é altamente suscetível às variações do balanço de pagamento, da importação por PIB, do desvio da condição da paridade coberta do período anterior, à taxa de inflação, à variação das exportações (em $ e em volume), à dívida total por PIB e à dívida externa pela exportação.

Households generally have little or no possibility to unload their real estate risk, which constitutes a large part of  their total portfolio risk. The aim of this study is to analyze a way for households to unload this risk through a socalled index-linked mortgage financed by a fund. The study examines how such a mortgage could be structured, and how it will affect  he bank, the borrower and the fund investor compared to a conventional mortgage. The ominal loan value and therefore also the interest payments of the studied index-linked  ortgage will vary according to the HOX Flats Stockholm Index. Through linear optimization, the structure is optimized from a borrower’s perspective but is subject to a set of constraints on the bank’s and the fund’s profitability and risk levels. The optimal structure is tested through a scenario analysis for different outcomes of apartment price developments and also  hrough a sensitivity analysis to test the effect of shifting conventional mortgage rates. The esults show that the interest rate payment burden will consistently be lower for the index-linked mortgage than for the conventional mortgage. The borrower is insured against house price drops but have to give up some of the upside potential on the property investment if house prices increase. The fund gets a satisfactory payoff in relation to the real estate  arket movement while it is somewhat protected when house prices decline. The bank issuing the mortgages will always experience a profit, but the conventional mortgage is more profitable  or negative index scenarios. Furthermore, the probability of default decreases for the index- inked mortgage holder when prices drop as the loan to value ratio (LTV) always remains  elow 100 percent for index decreases up to 40 percent. The structure is appropriate for  owincome households who will have difficulties paying back the loan when apartment prices  rops. This study contributes to theory in hedging of real estate risk, mortgage risk and  inancial innovation. / Hushåll har generellt få möjligheter att försäkra sig mot husprisrisk som idag utgör en stor del av hushållens totala portföljrisk. Denna studie undersöker en möjlighet för hushåll att försäkra sig mot sådan risk genom ett så kallat index-länkat bolån som finansieras genom en fond. Studien kontrollerar hur ett index-länkat lån kan struktureras och hur det påverkar banken, låntagaren och fondinvesteraren i jämförelse med ett traditionellt bolån. Lånets nominella värde och därmed även räntebetalningarna som är kopplade till lånet varierar enligt förändringar i HOX Flats Stockholm Index. Lånestrukturen optimerats genom linjär optimering med hänsyn till låntagarens lönsamhet och med bivillkor på bankens och fondens risktagande respektive lönsamhet. Den optimerade strukturen testas genom scenarioanalys för olika utfall av lägenhetsprisutveckling samt genom en känslighetsanalys av den  raditionella bolåneräntan. Resultaten visar att den månatliga betalningsbördan för räntebetalningarna alltid kommer att vara lägre för hushåll som håller ett index-länkade bolånet än för de som innehar ett vanligt lån. Det index-länkade lånet innebär att bolånetagare får ge upp en viss del av vinsten då bostadspriser stiger i förhållande till ett vanligt bolån men ger ett skydd mot förluster vid en nedgång i bostadspriser. Fonden visar sig kunna ge en god avkastning i relation till indexets utveckling och ger ett visst skydd mot fall i bostadsmarknaden. Banken som ger ut indexlänkade bolån kommer alltid att gå med vinst, dock är vanliga bolån mer lönsamma vid nedgång i huspriser. Fortsättningsvis minskar risken att ”defaulta” för hushåll med det index-länkade bolånet då huspriser faller eftersom strukturen innebär ett loan to value ratio (LTV) under 100 procent upp till en prisnedgång på 40 procent. Resultatet visar att index-länkade lån passar låginkomsttagare och hushåll som ommer att ha svårt att betala tillbaka sitt lån om bostadspriserna faller. Studien bidrar till teori inom husprisriskförsäkring samt till teori inom finansiell innovation