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Real Estate Financing and Interest Rate Hedging : A quantitative real estate investment case studyvan de Wiel, Wimjan, Kristopher Bock, Felix January 2017 (has links)
Background: The expansive monetary policy of the European Central Bank has been leading to all-time-low interest rates and to a strong move into real estate investment. Low interest rates can work in favor of the investor (due to low interest rate expenditures), but increasing interest rates can jeopardize real estate investments. Since changes in interest rates are unpredictable, an investor needs to deal with this volatility. The capital market offers several financial instruments (so-called “derivatives”) to overcome the above-mentioned obstacle. There is no “one-size-fits-all” strategy. The investor needs to decide which financing structure to combine with which form of derivative. Purpose: The investigation not only explains and shows how real estate financing and hedging strategies on a given project in Germany can work but also explains why it is crucial to link these segments. To achieve this purpose, the return on equity and return cash flows at risk are numerically estimated. The evaluative purpose will be served by using the above-mentioned ratios and cash flows to derive recommendations of action. In doing so, this study will illustrate the importance of hedging, particularly for real estate investors and investors in general. Method: Interest rates on a monthly basis for the period of June 1990 until March 2017 from Thomson Reuters Eikon and real life data from a German real estate investor and a German financial institution were collected. Thereafter, these numbers were used as a basis to perform interest rate and cash flow simulations (Monte Carlo). The simulations were used to determine superior financing and hedging strategies for the investor. Conclusion: The results of this study highlight the benefits from leveraged financing and the necessity of interest rate risk management (hedging) to obtain stabilized future cash flows and reduce volatility caused by fluctuating interest rates. Fixed rate loans offer protection against rising interest rates, but lack flexibility. Floating loans offer more flexibility but are riskier due to the unhedged interest rate exposure.
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Long term extrapolation and hedging of the South African yield curveThomas, Michael Patrick 17 June 2009 (has links)
The South African fixed interest rate market has historically had very little liquidity beyond 15 - 20 years. Most financial institutions are currently prepared to quote and trade interest rate risk up to a maximum term of 30 years. Any trades beyond 30 years usually attract very onerous spreads and raise relevant questions regarding an appropriate level of mid-rates. However, there are many South African entities whose business involves taking on exposure to interest rates beyond 30 years, such as life insurance companies and pension funds. These entities have historically used very traditional approaches to hedging their interest rate exposures across the whole term structure and have typically done little to gain any further protection. We can generalise the problems faced by any entity exposed to long term interest rate risk in South Africa: 1. The inadequacy of traditional matching methods (i.e. immunisation and bucketing) to cope with the long term interest rate risks. 2. The non-observability of interest rate data beyond the maximum term in the yield curve. Associated with this is the inability to adequately quantify interest rate risk. 3. The lack of liquidity in long term interest rate markets. Associated with this is the inability to adequately hedge long term interest rate risk. We examine various traditional approaches to matching / hedging interest rate risk using information available at observable / tradable terms on the nominal yield curve. We then look at the reasons why these approaches are not suitable for hedging long term interest rate risk. Some modern methods to forecast and hedge long term interest rate risks are then examined and the possibility of their use in managing long term interest risk is explored. On the back of these investigations, we propose a number of possible yield curve extrapolation procedures and methodology for performing calibrations. Using some general theoretical hedging results, we perform a case study which analyses the performance of various theoretical hedges over a historical period from October 2001 to March 2007. The results indicate that extrapolation and hedging of the yield curve is able to significantly reduce Value-At-Risk of long term interest rate exposures. A second case study is then performed which analyses performance of the various theoretical hedges using out-of-sample simulated yield curve data. We find that there appears to be a significant benefit to the use of yield curve extrapolation techniques, specifically when used in conjunction with a hedging strategy. In some cases we find that the more simple extrapolation techniques actually increase risk (significantly) when used in conjunction with hedging. However, for some of the more advanced techniques, risk can be significantly reduced. For an entity looking to deal with long term interest rate risk, we find that the choice of extrapolation technique and hedging strategy go hand-in-hand. For this reason the cost of hedging and reduction in risk are strongly correlated. The results we obtain suggest that it is necessary to weigh the benefits against the cost of hedging. Further, this cost seems to increase with increasing reduction in risk. The research and results presented here are related to those in the paper Long Term Forecasting and Hedging of the South African Yield Curve presented by Thomas and Maré at the 2007 Actuarial Convention in South Africa. Copyright / Dissertation (MSc)--University of Pretoria, 2009. / Mathematics and Applied Mathematics / unrestricted
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Modely úrokových měr a jejich použití k ocenění závazků z životního pojištění / Models of time structures of interest rates and their use in valuation of liabilities of life insurance CompanyTurussova, Valeriya January 2016 (has links)
This master thesis aims to describe problematics of the stochastic modeling of time structures of interest rates with Vasicek, CIR and Hull-White models and the use of these models in valuation of liabilities and time value of options and guaranties in life insurance. In the theoretical part of the thesis there are fundamentals of stochastic calculus, stochastic models of interest rates and introduction to problematics of life insurance defined. Furthermore, the last practical part of the thesis demonstrates impact of particular models on the value of liabilities in relation to clients and on the value of TVOG of real European life insurance Company.
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Srovnávací analýza úvěrů pro financování bydlení / Comparative analysis of loans to finance housingHoráková, Jana January 2016 (has links)
The thesis deals with loans to finance own housing. The thesis is primarily focused on mortgage loans, bridging loans and hans coming from building savings, both of them provided by building societies. In particular parts of the thesis are described basic principles of mortgage hans and building savings loans. There is stated thein legislation, kinds and types of individual housing loans. In the following part is analyzed the current market situation and market development of housing loans in the Czech Republic including the factors influencing this development. In the last part are compared different types of the hans using a model example. In comparison are included fees relating to loans and interest rates, which are published on the official website of selected companies.
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Vliv úrokových sazeb Evropské centrální banky na spotřebu v zemích Eurozóny / The Influence of European Central Bank Interest Rates upon Consumption in Eurozone CountriesGlykner, Daniel January 2007 (has links)
First, this paper presents basic definitions of the consumption function and gives a summary of main theoretical concepts of consumption as well as an overview and discussion of important papers on consumption. Above all, papers examining the influence of the interest rate upon consumption are accented. Furthermore it contains a brief context summary of current and potential eurozone members, work of the ECB and execution of common monetary policy. Subsequently we discuss the hypothesis of a possibly asymmetric impact of the interest rate upon consumption in individual countries, expand and justify the hypothesis based on indebtedness, wealth, etc. Empirically, hypotheses are tested on historical data of individual countries: transmission between interest rates of central banks (later the ECB) and market interest rates, correlation analysis of consumption changes and central interest rates in individual countries, correlations with year-on-year changes. Also, consumption functions are estimated using time series models while testing alternative variables in the regression equations. We discuss analysis results and methods used; the influence of the interest rate upon consumption seems to be small and the relationship type is not much different across the eurozone countries. Eventually, we outline possible implications of our results with respect to the future of the eurozone and related activity of the ECB.
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Vzájomné súvislosti úrokových sadzieb a menového kurzu na príklade vybraných krajín / Reciprocal corelations of interest rates and exchange rate described in the example of selected countriesMihalik, Miroslav January 2009 (has links)
This final work is aimed at the concept of relationship between exchange rate and interest rate differential. The introductory part briefly describes exchange rate as a macro-economical parameter, which can be seen in many different systems of exchange rate. Next part consists of theoretical principles of uncovered interest parity and the dynamics of this process and also the process of international Fisher effect. In the analysis part the relation between interest rate and exchange rate is explored in various conditions of exchange rate arrangements in the countries of Denmark, Norway, Sweden and Slovakia. The uncovered interest parity is valued by graphic analysis made by calculation of the theoretical rate based on uncovered interest parity and the off-set index rate. International Fisher effect is tested on the graph of change in exchange rate depending on the interest rate differential. The graphic analysis is followed by the analysis of linear regression. Afterwards with the use of VAR model we find not only the dependence of exchange rate on interest rate differential but also whether the interest rate differential is dependent on exchange rate or not.
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Vzájemné souvislosti úrokových sazeb a měnových kurzů (na příkladu vybraných zemí) / Bilateral relations between interest rates and exchange rates (in selected countries)Kočí, Tomáš January 2009 (has links)
This thesis deals with the relation between interest differential and exchange rate. First part is about the exchange rate system explanation and about explanation of theoretical background of relation between interest rate and exchange rate (i. e. Asset Market Model, Interest Rate Parity, etc.). The goal of second part is to verify theoretical assumptions on empirical data. There is a sample of ten European countries which is used for applying of graphical analysis, regression analysis and VAR model analysis.
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Analýza ukazatele RPSN u spotřebitelských úvěrů / Analysis of the APRC for consumer loansErnstová, Pavla January 2013 (has links)
The thesis titled "Analysis of the APRC for consumer loans" begins with basic economic knowledge of the consumer loans, mutual context and legal background. Key emphasis is placed on the pointer annual percentage rate of charge. Analyzed loans are selected from wide range of bank and non-bank institutions that meet the specified parameters. For each loan there is comparison of calculated and actual values presented in the APRC. Next part of focused on overall comparison of the obtained results. Last section provides theoretical recommendations for future development.
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Vývoj produktů pro financování bydlení a jejich analýza na finančním trhu / Development of the financial products for the home financing and the analysis in the czech marketŽák, Vojtěch January 2013 (has links)
The topic of my thesis is Development of the financial products for the home financing and the analysis in the Czech market. My thesis is primary occupied with mortgages loans. First part is focused on the explanation of basic terms conectedted with mortgages and credits from the building society account. Then I describe the hole credit procedure from the client's point of view, conditions of credit assignment and costs connected with the credit. Next teoretical part concerns about the development of the mortgage market in the Czech republice and possible changes in the market in the future. Practical part of my thesis consists of the analysis of three banks in the czech market-KB, ČSOB and mBank. I tried to compare offeres of mortgages loans, mortgages loans with insurance in case of incapability and the combinaton mortgage loan with regular credit from the building society account thanks to RPSN and chose the best solution.
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Analýza dopadů nízkých úrokových sazeb na hospodaření bank / Analysis of the impact of low interest rates on bank profitabilityZemanová, Kateřina January 2015 (has links)
This thesis aims to analyze the significance of the impact of low interest rates on profitability of banks in the Czech Republic. Profitability of banks is examined through an analysis of the financial profitability ratios on a sample of 6 banks in the period 2004 to 2014. A more detailed analysis and a better assessment of the impact of low interest rates on bank profitability are used decomposition of return on equity, which did not show the effect of low interest rates on return on assets. A more relevant indicator for assessing the impact of low interest rates is the net interest margin, reflecting a negative impact with half of all banks. The financial analysis results were confirmed in a subsequent regression analysis, which examined a variety of internal and external determinants of profitability including the impact of low interest rates. The impact of low interest rates, there was again demonstrated only in the net interest margin, but it certainly can not talk about the dominant factor.
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