Modeling interest rates moving in a band

Download
2018
Özel, Özgür
It is not uncommon to observe interest rates or currencies to move in a band or being subject to an upper and/or lower bound set by national central banks. The Turkish Central Bank is using the interest rate corridor system actively in tandem with the liquidity policy to fine–tune the short rate in the TRY money market. Bond pricing models relying on a single factor use the short rate as the sole determinant of the entire yield curve. It would be a big mistake to ignore the fact that the short rate in Turkey is moving in a corridor, while pricing bonds using the short rate as the single factor. In this work, we try to establish a one factor yield curve model, where the interest rate is modeled as Vasicek process. The closed-form bond price is the main contribution of the novel approach devised in the thesis. Furthermore, mean reversion and normality tests of the time series justifies the usage of Vasicek process as the underlying interest rate mode

Suggestions

Term structure of government bond yields : a macro-finance approach
Artam, Halil; Yıldırak, Şahap Kasırga; Department of Financial Mathematics (2006)
Interactions between macroeconomic fundamentals and term structure of interest rates be stronger according to the way of changes in structure of worldwide economy. Combined macro-finance analysis determines the joint dynamics of term structure of interest rates and macroeconomic fundamentals. This thesis provides analysis of two existing macro-finance models and an original one. Parameter estimations for these three macro-finance term structure models are done for monthly Turkish data by use of an efficient...
Computation of Hedging Coefficients for Mortgage Default and Prepayment Options: Malliavin Calculus Approach
YILMAZ, BİLGİ; Kestel, Sevtap Ayşe (2019-11-01)
This study explores the hedging coefficients of the financial options to default and to prepay embedded into mortgage contracts based on the change in spot rate, underlying house price and its volatility. In the computations, the finite-dimensional Malliavin calculus is applied since the distribution of both options is unknown and their payoffs are non-differentiable. Naturally, the hedging coefficients are obtained as a product of option's payoff and an independent weight, which permits the user to derive ...
Investigating the effects of illiquidity on credit risks via new liquidity augmented stochastic volatility jump diffusion model
Gaygısız Lajunen, Esma; Hekimoglu, Alper (2021-12-01)
Liquidity is extremely important not only within the context of financial markets but also in every scale of economic transactions. In this study, within the realm of financial markets, we configure liquidity as an independent stochastic process moderating the fluidity of all transactions and hence dynamically changing asset values. This study's asset value process ignoring liquidity is modelled with a stochastic volatility jump-diffusion (SVJ) model and that model is augmented with the incorporation of a l...
EXAMINATION OF BOND RISK PREMIA FROM THE BANKING PERSPECTIVE
Orhan, Selim; Danışoğlu, Seza; Department of Financial Mathematics (2022-5-10)
Banks are considered as the marginal and sophisticated investors of financial markets. This is evident in the Haddad and Sraer (2020) study that examines the US government bond excess returns. This study extends the Haddad/Sraer analysis to the Turkish government bond market. According to the forecasting results, exposure ratio provides explanatory power over bond excess returns, especially for longer maturities. On the other hand, output gap and industrial growth present strong in-sample forecasting power ...
Forecasting directional movement of forex data using LSTM with technical and macroeconomic indicators
Yıldırım, Deniz Can; Toroslu, İsmail Hakkı; Department of Computer Engineering (2019)
Foreign Exchange is known as Forex or FX is a financial market where currencies are bought and sold simultaneously. Forex is the largest financial market with more than $5 trillion volume. It is a decentralized market that is operational 24 hours in a day other than weekends which makes different from other markets. Fundamental and Technical Analysis are the two techniques that are commonly used in predicting the future prices in Forex. Fundamental Analysis concentrates on the economical, social and politic...
Citation Formats
Ö. Özel, “Modeling interest rates moving in a band,” Ph.D. - Doctoral Program, Middle East Technical University, 2018.