Interest Rates and Credit Spread Dynamics

2000 ◽  
Author(s):  
Robert Neal ◽  
Douglas S. Rolph ◽  
Charles Morris
Keyword(s):  
Interest Rates ◽  
Credit Spread ◽  
Spread Dynamics

Interest Rates and Credit Spread Dynamics

2015 ◽  
Vol 23 (1) ◽  
pp. 25-39 ◽  
Author(s):  
Robert Neal ◽  
Douglas Rolph ◽  
Brice Dupoyet ◽  
Xiaoquan Jiang
Keyword(s):  
Interest Rates ◽  
Credit Spread ◽  
Spread Dynamics

The credit spread dynamics of Latin American euro issues in international bond markets

2008 ◽  
Vol 18 (4) ◽  
pp. 328-345 ◽  
Author(s):  
Kannan S. Thuraisamy ◽  
Gerard L. Gannon ◽  
Jonathan A. Batten
Keyword(s):  
Latin American ◽  
Credit Spread ◽  
Bond Markets ◽  
Spread Dynamics

THE IMPACT OF LEARNING ON BUSINESS CYCLE FLUCTUATIONS IN THE CONSUMER UNSECURED CREDIT MARKET

2018 ◽  
Vol 24 (5) ◽  
pp. 1087-1123 ◽  
Author(s):  
Matthew N. Luzzetti ◽  
Seth Neumuller
Keyword(s):  
Business Cycle ◽  
Interest Rates ◽  
Default Risk ◽  
Credit Market ◽  
Credit Spread ◽  
Cross Sectional ◽  
Business Cycle Fluctuations ◽  
Unsecured Debt ◽  
Consumer Default ◽  
The Impact

We document that the credit spread on consumer unsecured debt exhibits a persistent, hump-shaped response to an increase in the charge-off rate. This stylized fact poses a significant challenge for a standard model of consumer default in which lenders have rational expectations and, therefore, the credit spread continuously adjusts to reflect the true default incentives of each borrower. In an effort to explain this feature of the data, we construct a model of consumer default with countercyclical income risk in which lenders learn about default risk over time by observing the history of repayment decisions, as is the case in practice. In addition to matching credit spread dynamics, allowing lenders to learn about default risk substantially improves the model’s ability to generate realistic business cycle fluctuations in the consumer unsecured credit market and match the cross-sectional distribution of unsecured debt and dispersion of interest rates observed in the data.

A SPREAD-RETURN MEAN-REVERTING MODEL FOR CREDIT SPREAD DYNAMICS

2014 ◽  
Vol 17 (03) ◽  
pp. 1450017 ◽  
Author(s):  
BRENDAN O'DONOGHUE ◽  
MATTHEW PEACOCK ◽  
JACKY LEE ◽  
LUCA CAPRIOTTI
Keyword(s):  
Stochastic Model ◽  
Stochastic Processes ◽  
Heavy Tails ◽  
Credit Default Swap ◽  
Credit Spread ◽  
Return Distribution ◽  
Credit Default ◽  
Spread Dynamics ◽  
Rate Processes ◽  
Default Swap

In this paper, we propose a novel, analytically tractable, one-factor stochastic model for the dynamics of credit default swap (CDS) spreads and their returns, which we refer to as the spread-return mean-reverting (SRMR) model. The SRMR model can be seen as a hybrid of the Black–Karasinski model on spreads and the Ornstein–Uhlenbeck model on spread returns, and is able to capture empirically observed properties of CDS spreads and returns, including spread mean-reversion, heavy tails of the return distribution, and return autocorrelations. Although developed for modeling CDS spreads, the SRMR model has applications for many other stochastic processes with similar empirical properties, including more general rate processes.

scholarly journals SELF EXCITING THRESHOLD INTEREST RATES MODELS

2006 ◽  
Vol 09 (07) ◽  
pp. 1093-1122 ◽  
Author(s):  
MARC DECAMPS ◽  
MARC GOOVAERTS ◽  
WIM SCHOUTENS
Keyword(s):  
Interest Rates ◽  
Stochastic Volatility ◽  
Stock Price ◽  
Transition Density ◽  
Credit Spread ◽  
Forward Rates ◽  
New Class ◽  
The Us ◽  
Rate Processes ◽  
Analytical Expressions

In this paper, we study a new class of tractable diffusions suitable for model's primitives of interest rates. We consider scalar diffusions with scale s′(x) and speed m(x) densities discontinuous at the level x*. We call that family of processes Self Exciting Threshold (SET) diffusions. Following Gorovoi and Linetsky [18], we obtain semi-analytical expressions for the transition density of SET (killed) diffusions. We propose several applications to interest rates modeling. We show that SET short rate processes do not generate arbitrage possibilities and we adapt the HJM procedure to forward rates with discontinuous scale density. We also extend the CEV and the shifted-lognormal LIBOR market models. Finally, the models are calibrated to the US market. SET diffusions can also be used to model stock price, stochastic volatility, credit spread, etc.

scholarly journals Interest rate pass through in the deposit and loan products provided by Greek banks

2021 ◽  
Author(s):  
Panagiotis Lazaris ◽  
Anastasios Petropoulos ◽  
Vasileios Siakoulis ◽  
Evangelos Stavroulakis ◽  
Nikolaos Vlachogiannakis
Keyword(s):  
Interest Rates ◽  
Stress Test ◽  
Money Market ◽  
Credit Spread ◽  
Consumer Loans ◽  
Pass Through ◽  
Greek Banks ◽  
Corporate Customers ◽  
Very High

A core input in performing a regulatory stress test is the evolution of interest rates, as it affects the income generated from the assets’ side and the expenses from the liabilities’ side. In this work, we apply an autoregressive model with distributed lags (ADL) to quantify the pass through rates, that is, the degree and speed of incorporation of the changes of money market rates by banks into their customers deposit and loan rates. In doing so, for the liabilities’ side, we differentiate between open and term deposits, as well as between households and non-financial corporates. Our results indicate that for term deposits the long-term pass through rate is very high, exceeding 91% for non-financial corporate customers and 81% for households. For open deposits, the pass through rate dynamics appear less prevalent, amounting to 21% for non-financial corporate customers and 16% for households. When exploring the pass through rate dynamics in the assets’ side of the banks, we observe full long-term pass-through of money market rates, for mortgage and consumer loans. By contrast, the non-financial corporate loans rate is stickier and less reactive to money market rates changes, with long-term pass-through adjustment being approximately equal to 40%. Furthermore, our results provide evidence that the Greek sovereign spread movement has practically negligible pass through rate both for loan and deposit products. In particular, it hardly affects the pricing of new term deposits, with a pass through rate of around 5%. This finding can be attributed, among others factors, to the fact that the Greek sovereign credit spread has approached several times non-tradable territories, which makes it an insignificant variable in determining customer rates.

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