• The Journal of Asian Finance, Economics and Business
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• v.3 no.3
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• pp.57-65
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• 2016

The purpose of this paper is to investigate the volatility of both Islamic and conventional stock market in Indonesia with the aim of identifying the most appropriate model for risk management practice. The study considers GARCH as a genre of model to measure the volatility of stock market movement. The results support the view that each model shows specific volatility from both Islamic and conventional stock market in Indonesia. In Islamic stock market, volatility is affected by exchange rate and money supply (M1) but not interest rate as interest is prohibited in Islam. However, interest rate is found as a principal factor that affects volatility of conventional stock market. The outcomes of this paper are of particular significance to policy makers, as it provides guidelines to maintain economic health. Furthermore, the findings may assist practitioners to understand the consequences of macroeconomic factors such as exchange rate, money supply and interest rate, which are very crucial for the market stability of Indonesian stock market. The paper enhances the understanding of stock market volatility and proposes guidelines risk management practices.

• Korean Journal of Mathematics
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• v.23 no.1
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• pp.81-91
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• 2015

This paper is about the local volatility for the price of a European quanto call option. We derive the explicit formula of the local volatility with constant foreign and domestic interest rates by adapting the methods of Dupire and Derman & Kani. Furthermore, we obtain the Dupire equation for the local volatility with stochastic interest rates.

• Journal of the Korean Data and Information Science Society
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• v.25 no.6
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• pp.1507-1520
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• 2014

In this paper, we show that there is a positive correlation between the level and the volatility of interest rate and thus suggest that a proper interest rate volatility coefficient (IRVC), a factor used in evaluating the interest rate risk that insurers are exposed to, should be chosen in accordance with the level of interest rate. To this end, we calculate the historical volatility of interest rate using data on government bond yields and show a proportionate relationship between interest rate and historical volatility. The review of exponential Vasicek (EV) and Cox-Ingersoll-Ross (CIR) models for interest rate also confirms the positive correlation between them. The estimation of IRVC by EV and CIR models are 0.9 and 1.1, respectively, which are much smaller than the one under the current risk-based capital (RBC) requirement. We provide modified IRVCs reflecting the level of interest by the two interest rate models. Using modified IRVCs can be a more reasonable method to evaluate the interest rate risk that insurers face.

• Asian Journal of Business Environment
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• v.11 no.4
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• pp.17-29
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• 2021

Purpose: The aim of this study is to explore the dynamic linkage between conditional stock market volatility and macroeconomic uncertainty of Bangladesh. Research design, data, and methodology: This study uses monthly data covering the time period from January 2005 to December 2018. A comprehensive set of macroeconomic variables, namely industrial production index (IP), consumer price index (CPI), broad money supply (M2), 91-day treasury bill rate (TB), treasury bond yield (GB), exchange rate (EX), inflow of foreign remittance (RT) and stock market index of DSEX are used for analysis. Symmetric and asymmetric univariate GARCH family of models and multivariate VAR model, along with block exogeneity and impulse response functions, are implemented on conditional volatility series to discover the possible interactions and causal relations between macroeconomic forces and stock return. Results: The analysis of the study exhibits time-varying volatility and volatility persistence in all the variables of interest. Moreover, the asymmetric effect is found significant in the stock return and most of the growth series of macroeconomic fundamentals. Results from the multivariate VAR model indicate that only short-term interest rate significantly influence the stock market volatility, while conditional stock return volatility is significant in explaining the volatility of industrial production, inflation, and treasury bill rate. Conclusion: The findings suggest an increasing interdependence between the money market and equity market as well as the macroeconomic fundamentals of Bangladesh.

• Journal of applied mathematics & informatics
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• v.28 no.3_4
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• pp.923-929
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• 2010

We have discovered some parametics $\lambda$ in the Black-Scholes equation which depend on the interest rate $\gamma$ and the Volatility $\sigma$ and later is named the parametic interest. On studying the parametic interest $\lambda$, we found that such $\lambda$ gives the sufficient condition for the existence of solutions of the Black-Scholes equation which is either weak or strong solutions.

• The Journal of Asian Finance, Economics and Business
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• v.7 no.7
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• pp.15-25
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• 2020

This empirical research aims to identify the relationship between fiscal and financial macroeconomic fundamentals and the volatility of government bonds' borrowing cost in an emerging country - Vietnam. The study covers the period from July 2006 to December 2019 and it is based on a sample of 1-year, 3-year, and 5-year government bonds, which represent short-term, medium-term and long-term sovereign bonds in Vietnam, respectively. The Generalized AutoRegressive Conditional Heteroskedasticity (GARCH) model and its derivatives such as EGARCH and TGARCH are applied on monthly dataset to examine and suggest a significant effect of fiscal and financial determinants of bond yield volatility. The findings of this study indicate that the variation of Vietnam government bond yields is in compliance with the theories of term structure of interest rate. The results also show that a proportion of the variation in the yields on Vietnam government bonds is attributed to the interest rate itself in the previous period, base rate, foreign interest rate, return of the stock market, fiscal deficit, public debt, and current account balance. Our results could be helpful in the macroeconomic policy formulation for policy-makers and in the investment practice for investors regarding the prediction of bond yield volatility.

• Journal of the Korean Mathematical Society
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• v.57 no.5
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• pp.1167-1186
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• 2020

This paper considers the case of pricing discretely-sampled variance swaps under the class of equity-interest rate hybridization. Our modeling framework consists of the equity which follows the dynamics of the Heston stochastic volatility model, and the stochastic interest rate is driven by the Cox-Ingersoll-Ross (CIR) process with full correlation structure imposed among the state variables. This full correlation structure possesses the limitation to have fully analytical pricing formula for hybrid models of variance swaps, due to the non-affinity property embedded in the model itself. We address this issue by obtaining an efficient semi-closed form pricing formula of variance swaps for an approximation of the hybrid model via the derivation of characteristic functions. Subsequently, we implement numerical experiments to evaluate the accuracy of our pricing formula. Our findings confirm that the impact of the correlation between the underlying and the interest rate is significant for pricing discretely-sampled variance swaps.

• Journal of Korea Trade
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• v.26 no.2
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• pp.21-44
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• 2022

Purpose - This study quantifies sources of trade balance dynamics over the business cycle in Korea. Specifically, we quantify the relative importance of domestic and foreign factors on trade balance dynamics using a small open economy real business cycle (SOE-RBC) model and provide policy implications for stabilization policies. Aggregate productivity and interest rate spreads are considered domestic factors affecting the trade balance. A world interest rate (the U.S. interest rate) is considered a foreign factor. Design/methodology - Following Neumeyer and Perri (2005), we build the SOE-RBC model with three types of shocks: aggregate productivity, interest rate spread, and world interest shocks. The model is estimated by the generalized method of moments (GMM) using relevant business cycle statistics. The estimated model is used for quantifying the relative importance of domestic and foreign factors on trade balance dynamics in Korea. Findings - Our main findings can be summarized as follows: 85.64% of the trade balance fluctuations in Korea are explained by domestic factors, the remaining 14.35% by foreign factors. Particularly, trade balance dynamics are mostly accounted for by the change in aggregate productivity shocks (85.58%). World interest rate shocks considerably explain trade balance (14.35%), whereas the role of interest rate spread shocks that represent domestic risks is limited (0.08%). Although aggregate productivity is key in explaining trade balance dynamics in Korea, interest rates still have an essential role. This is because aggregate productivity changes induce interest rate spread variations and, thus, the trade balance significantly. The results suggest that government policies mitigating fluctuations in aggregate productivity would be effective for stabilization policies in Korea by reducing the trade balance volatility. Originality/value - Existing studies on the emerging market business cycle examine mostly Latin American countries, and the main object of the studies is the volatility of consumption rather than trade balance dynamics. Conversely, our study examines Korea rather than Latin American countries. Additionally, we examine sources of trade balance dynamics, which are relatively more important in Korea, rather than those of the volatility of consumption. Hence, we estimate the model to explicitly match moments related to trade balance in the data.

• International conference on construction engineering and project management
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• 2005.10a
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• pp.824-829
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• 2005

This paper focuses on construction cost volatility for the purpose of private sector investment by use of a financial model with key indices of IRR and DSCR (Debt Service Coverage Ratio). A case project, 1,000 MW pumped storage hydropower plant, has shown that its financial impacts by cost volatility of underground works are less measured than interest rates impacts by interest rate of loans. Probabilistic analysis of costs under geotechnical conditions has been made by Indicator Kriging method. And, in the modeling of interest rates, geometric Brownian motion has been applied. Both of these impacts are measured on the same financial model.

• East Asian Journal of Business Economics (EAJBE)
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• v.3 no.4
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• pp.9-15
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• 2015

The exchange rate is a very important macro variable that has influence on the whole economy and has, therefore, been the topic of many discussions amongst policymakers, academics and other economic agents. The issue of whether to have a fixed, pegged or floating exchange rate regime was highly debated during the 1970s. The purpose of this paper is to investigate what factors determine the exchange rate in Somalia. Quantitative research methodology has been employed to develop regression model using time series data for the period of 12 years. The regression model has been developed based on Quantity theory of money, purchasing power parity and uncovered interest rate parity theory. Somalia is on the countries where the highest exchange rate volatility exists; for example in 2012, the rate jumped 29% percent and two weak later dropped 21%, when Turkish humanitarian aid agencies injected the market a lot of U.S dollar. Based on my study using regression model for time series data of 12 years, the four factors are mainly attributable for the exchange rate volatility of Somalia; these factors include the balance of payment, inflation rate, money supply (mostly come from remittance and NGOs) and Bank profits.