D.Econ. / Uncertainty is an element that pervades the very existence of man. As one moves through time, almost every decision that one takes is associated with some degree of uncertainty. As one departs from one moment in time to another, one's journey comprises choices and expectations relating to all matters of life. A choice is made when one decides to adopt one or more courses of action from a set of available alternatives. The uncertainty associated with each decision is not merely whether or not the correct choice was made, but more in terms of whether or not the expected outcome will be realised. The time between the moment a decision is made and the future moment in which the outcome is expected to be realised, is permeated with the essence of uncertainty.

This dissertation consists of two papers. The first paper examines the propagation of firm-specific shocks as well as market-wide shocks between 1995-2003 using Treasury and corporate bond market data. It then tests the implications of previously proposed models of contagion. I find little support for the industry and counterparty structure hypothesis, suggesting that fundamentals do not generate contagion. Consistent with the information transmission, rebalancing, and liquidity-shock hypotheses, I find evidence of flight to quality during the event periods. However, in contrast to the prediction of the liquidity-shock channel, the corporate bond market, on average, seems to be more liquid during event periods (evidenced by higher trading volume, trading frequency, and mean bond age). Furthermore, there are no significant changes in the trading of assets with the low transaction costs, which is contrary to the rebalancing theory. These findings are more in favor of the correlated information channel as a means of inducing contagion.The second paper examines the effect of liquidity on corporate bond prices using the newly formed TRACE data set. In the spirit of Acharya and Pedersen's (2005) liquidity-adjusted capital asset pricing model (LCAPM), I examine the impact of multiple sources of risk on corporate bond prices. The results do not lend strong support for the existence of liquidity risk in the corporate bond market or for the LCAPM, especially when liquidity is captured using the trading frequency, trading volume, and turnover. Contrary to the predictions of the LCAPM, more illiquid portfolios do not have higher values for the three liquidity betas; betas that capture the commonality in liquidity with the market, the sensitivity in returns with the market-wide liquidity, and the liquidity sensitivity with the market returns. Furthermore, after running cross-sectional regressions I do not find strong evidence either for the validity of the model or that liquidity risk does matter for the corporate bond prices.

[pt] Este trabalho analisará uma das maiores emissões de bonds de todos os tempos, a emissão de USD 11 bilhões de bonds da Petrobras que aconteceu em maio de 2013. Além de ser a maior transação da história para países emergentes até hoje, a emissão também foi feita em hora oportuna quando a Petrobras aproveitou uma excelente janela e mercado para fazer a emissão. A repercussão da transação também foi excelente tendo sido veiculada em vários meios de comunicação. O trabalho relatará do anúncio, precificação e lançamento da emissão que foi muito bem recebida pelo mercado financeiro. / [en] This paper will examine one of the largest bond issue ever, the USD 11 billion Petrobras bonds issue by Petrobras, the brazilian oil company, held in May 2013. Besides being the largest transaction in history for emerging countries until today, the issue has also been taken in proper time when Petrobras took an excellent market window to make the issue. The effect of the transaction was also great having been conveyed in various media vehicles. The work will speak with the market s announce, pricing and launch the issue which was very well received by the financial market.

New information has an important role in asset price movement. This paper investigates the role of scheduled domestic news releases on the Australian government bond market. Specifically, it examines the impact of pre-announced macroeconomic news release on bond futures markets and associated market volatility. Furthermore, an EGARCH-in-mean model is used to determine the asymmetric response of the conditional volatility to either news release or unexpected changes of some news content. The results indicate that excess return of bond futures in the research period was leptokurtic (fat-tailed) with time-varying conditional heteroscedasticity. Day of the week volatility was also present but with a declining pace. It’s generally attributed to the release dates of announcements and information flow from offshore markets. Although announcement effects to the bond futures market were significant, they depended on the type of maturity. Finally, results from EGARCH indicate that fundamental lagging indicators such as CPI and GDP are always important in explaining the impact of news release on market volatility, whereas the unemployment rate has a reasonable role in announcement surprises. The data suggest the following conclusion: investors are seriously concerned with news releases on macroeconomic variables they can feasibly forecast because they are always fundamental and provide a partial indication of the future economy. Surprises from news content are also critical to investors because some important variables can only be forecasted with limited accuracy. Therefore, deviation from anticipated outcomes in the actual content also causes significant market movement. / Thesis(M.Comm.)-- School of Commerce, 2007.

This thesis comprises three essays that explore several theoretical and empirical features of affine term structure models. In the first essay, we focus on the ability of continuous-time affine term structure models to capture time variability in the second conditional moment. Using data on US Treasury yields, we conclude that affine term structure models are much better at extracting time-series volatility from the cross-section of yields than argued in the literature. These models have nonetheless difficulty capturing volatility dynamics at the short end of the maturity spectrum, perhaps indicating some form of segmentation between long-maturity and short-maturity bonds. These results are robust to the choice of sample period, interpolation method and estimation method. In the second essay, we propose the use of the unscented Kalman filter technique for the estimation of affine term structure models using non-linear instruments. We focus on swap rates and show that the unscented Kalman filter leads to important reductions in bias and gains in precision. The use of the unscented Kalman filter results in substantial improvements in out-of-sample forecasts. Our findings suggest that the unscented Kalman filter may prove to be a good approach for a number of problems in fixed income pricing in which the relationship between the state vector and the observations is nonlinear, such as the estimation of term structure models using interest rate derivatives or coupon bonds, and the estimation of quadratic term structure models. The third essay provides a tractable framework for pricing defaultable securities with recovery risk. Pricing solutions are explored for a large family of discrete-time affine processes and a five-factor Gaussian model is estimated on BBB and B Standard and Poor's yield indices. This rich econometric setup allows the model to simultaneously capture two important stylized facts of defaultable securities: The positive correlation between the loss given default and the intensity of default, and the negative correlation between the intensity of default and the risk-free interest rate.

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Opbrengskoerse van vasterentedraende effekte verander as gevolg van veranderings in vraag en aanbod op die kapitaalmark. Die veranderinge in opbrengskoerse bei'nvloed die pryse van vasterentedraende effekte, asook van die opsies op hierdie effekte en stel beleggers in hierdie instrumente bloot aan beleggingsrisiko. Hierdie studie ondersoek die uitwerking van veranderings in die opbrengskoerse op die pryse van vasterentedraende eff ekte en opsies indien geen verskansing teen beleggingsrisiko toegepas word nie. Verder word verskillende verskansingstegnieke vergelyk ten einde te bepaal welke tegniek beleggingsrisiko die mees doeltreffendste kan beperk. Die studie toon aan dat dit wenslik is om beleggings en vasterentedraende effekte en opsies teen beleggingsrisiko te verskans. Empiriese toetse is op verskeie tegnieke gedoen om te bepaal watter verskansingstegnieke beleggingsrisiko die doeltreffendste kan beperk. Die gevolgtrekking is dat beleggingsrisiko inderdaad doeltreffend beperk kan word. Vir elke posisie in vasterentedraende en opsies is 'n spesifieke verskansingstegniek gei'dentifiseer om sodanige posisie doeltreffend in terme van winsgewendheid te verskans. / Yield on fixed interest bearing securities change as a result of changes in the supply and demand in the capital market. These changes in the yield influence the prices of fixed interest securities, as well as options on fixed interest securities and expose .investors in these instruments to investment risk. This study investigates the effect of changes in yield on the prices of fixed interest securities and options if no hedging against investment risk is instituted. Different techniques are compared to establish which technique will restrict investment risk effectively. This study shows that it is desirable to hedge investments in fixed interest securities and options against investment risk. Empirical tests were conducted on a variety of techniques to establish which technique would restrict investment risk effectively. The conclusion is that investment risk can be limited. A specific technique has been identified for each position in fixed interest securities and options that can hedge such a position effectively against investment risk in terms of profitability. / Business Management / MCOM (Bedryfsekonomie)

"No matter how good a portfolio manager is, she or he can not makes right investment decisions without the right information. It is all about data: how can many megabytes of data must be loaded into a continuously growing system, stored efficiently, and made easily accessible to all queries and to all applications? In this project, we build a decision database for managing a portfolio of fixed-income investments. We review the key features of the database architecture and describe key steps in processing the available date. In addition, we review some common analyses that are done by the portfolio manager by studying the report needed for a study of the investment duration at the sector level. "

Lai, Kwok Tung. / Thesis (M.Phil.)--Chinese University of Hong Kong, 2008. / Includes bibliographical references (leaves 64-66). / Abstracts in English and Chinese. / Abstract --- p.i / Chapter 1 --- Introduction --- p.1 / Chapter 2 --- Literature Review --- p.9 / Chapter 3 --- Preliminary Analysis of Data --- p.17 / Chapter 3.1 --- Data --- p.17 / Chapter 3.2 --- Preliminary Analysis of Unspanned Stochastic Volatility --- p.20 / Chapter 4 --- A Jump-Diffusion Model for Federal Funds Target Rate --- p.23 / Chapter 4.1 --- Model Specification --- p.23 / Chapter 4.2 --- Estimation Result --- p.31 / Chapter 5 --- Pricing and Hedging Performance of Interest Rate Derivatives --- p.34 / Chapter 5.1 --- Pricing Performance of Interest Rate Cap --- p.34 / Chapter 5.2 --- Hedging Performance of Interest Rate Caplet --- p.38 / Chapter 5.3 --- Hedging Performance of Interest Rate Straddle --- p.42 / Chapter 6 --- Conclusion --- p.49 / Figures --- p.51 / Tables --- p.55 / Bibliography --- p.64

Researchers have over-concentrated on the relationship between bank stock returns and interest rate changes without paying much attention to the impact of interest rates on non-bank financial institutions, in particular the insurance and real estate industries. This research attempts to examine the sensitivity and importance of interest rates and stock market price behaviour on non-bank financial institutions across three countries: the United States, the United Kingdom and Australia. The results provide a different perspective on the relationship non-bank financial institutions have with the fixed income and equity markets, and sheds new light on their long-run interaction. For the insurance market, interest rate movements seem to be just as important as the stock market in explaining the variation of insurance portfolio returns in the United States. However, there is only a weak relationship between interest rate changes and insurance portfolio returns in the United Kingdom and Australia. The liquidity problem in the United Kingdom and small sample size issues in Australia may have influenced the final results. In addition, size and profitability of the insurance companies do influence the significance of interest rate coefficients. This suggests that the financial makeup of a firm can modify or influence the sensitivity of stock returns towards interest rate changes. For the securitised property market, once structural breaks are accounted for, the results show that securitised property is driven by both interest rate and stock market changes, regardless of the type of financial institutions being examined. Evidence also points to companies with different leverage ratios and companies that are tax-exempt entities are still all influenced by both the equity and fixed income markets over the long-run period, although the influence these factors have does vary across time. A major contribution of this study clearly points to the relative weightings that portfolio managers may now consider to be appropriate with regard to their holdings of bonds, equities and non-bank financial institutions in their portfolios for both their tactical and strategic asset allocations. For example, it may not be a wise decision to invest significant amounts of capital in both securitised properties and fixed income securities given that both instruments are co-integrated in the long-run. Although this research was primarily conducted prior to the current economic situation, some of the major conclusions from this research are particularly relevant today. Moreover, with better understanding of the sensitivity among security prices and various financial risk factors, financial managers are able to manage and control their companies’ risk exposure towards interest rate risk and stock market conditions more effectively and efficiently. / http://proxy.library.adelaide.edu.au/login?url= http://library.adelaide.edu.au/cgi-bin/Pwebrecon.cgi?BBID=1371959 / Thesis (Ph.D.) - University of Adelaide, Business School, 2009