A multiple-curve Lévy forward rate model in a two-price economy

An advanced Heath–Jarrow–Morton forward rate model driven by time-inhomogeneous Lévy processes is presented which is able to handle the recent development to multiple curves and negative interest rates. It is also able to exploit bid and ask price data. In this approach in order to model spreads between curves for different tenors, credit as well as liquidity risk is taken into account. Deterministic conditions are derived to ensure the positivity of spreads and thus the monotonicity of the curves for the various tenors. Valuation formulas for standard interest rate derivatives such as caps, floors, swaptions and digital options are established. These formulas can be evaluated numerically very fast using Fourier-based valuation methods. In order to exploit bid and ask prices we develop this approach in the context of a two-price economy. Explicit formulas for bid as well as ask prices of the derivatives are stated. A specific model framework based on normal inverse Gaussian and Gamma processes is proposed which allows for calibration to market data. Calibration results are presented based on multiple-curve bootstrapping and cap market quotes. We use data from September 2013 as well as September 2016. The latter is of particular interest since rates were deep in negative territory at that time.     

Pricing factors in multiple-term structures from interbank rates

This article analyzes the reward for the risk embedded in interbank derivatives, seeking to characterize the size and economic sources of the components of this risk premium in interbank spread quotes. The basis swap (BS) spreads – floating-to-floating interest rate swaps – are employed as a vehicle used by investors to express their views concerning the risk of borrowing on the interbank market. Our results show that the size of the risk premium ranges from 20 to 60 basis points, depending on the tenor, during periods of financial distress. Moreover, the evolution of this risk premium increases dramatically after August 2007, primarily due to the evolution of credit variables such as sovereign and financial sector risks. Finally, we also document important sources of commonality between risk premiums at different tenors. An analysis of the determinants of risk premia reveal that investors’ compensation relates to financial sector credit and liquidity uncertainty, and risk aversion.     

The management of interest rate risk during the crisis: Evidence from Italian banks

We use a unique dataset to analyze how Italian banking groups managed their exposure to interest rate risk during the recent financial crisis. First of all, we document that on average the interest rate risk exposure – measured by duration gap approach – has been limited and well below the alert level enforced by regulators. Second, our econometric results indicate a relation of substitutability between banks’ on-balance-sheet interest rate risk and their use of interest rate derivatives suggesting that banks used these two instruments to curb their overall interest rate risk exposure in case of an increase in interest rates. Furthermore, we also find robust evidence of a negative correlation between banks’ interest rate risk and liquidity risk.     

Risk management of non-maturing liabilities

Risk management of non-maturing liabilities is a relatively unstudied issue of significant practical importance. Non-maturing liabilities include most of the traditional deposit accounts like demand deposits, savings accounts and short time deposits and form the basis of the funding of depository institutions. Therefore, the asset and liability management of depository institutions depends crucially on an accurate understanding of the liquidity risk and interest rate risk profile of these deposits.In this paper we propose a stochastic three-factor model as general quantitative framework for liquidity risk and interest rate risk management for non-maturing liabilities. It consists of three building blocks: market rates, deposit rates and deposit volumes. We give a detailed model specification and present algorithms for simulation and calibration. Our approach to liquidity risk management is based on the term structure of liquidity, a concept which forecasts for a specified period and probability what amount of cash is available for investment. For interest rate risk management we compute the value, the risk profile and the replicating bond portfolio of non-maturing liabilities using arbitrage-free pricing under a variance-minimizing measure. The proposed methodology is demonstrated by means of a case study: the risk management of savings accounts.     

The interplay between liquidity regulation,monetary policy implementation and financial stability

I outline a simple framework for thinking through how the Basel III liquidity regulations – in particular, the Liquidity Coverage Ratio (LCR) – will impact short-term interest rates and the process of monetary policy implementation. This framework suggests that a regulatory premium may arise in some market interest rates, creating a new wedge in the monetary transmission mechanism. I discuss ways in which a central bank could react to this new wedge, highlighting what may be a fundamental tension between implementing monetary policy effectively and using liquidity regulation to promote financial stability.     

中国银行业系统流动性风险考察与控制——基于资产抛售价格视角

基于银行业在宏观风险来临时出现的流动性不足和系统性风险,通过建立 DSGE-VAR 模型,考量银行业在宏观经济运行框架下的系统流动性风险,结果发现:银行同业借贷、其他证券资产和交易性负债业务的综合作用会使得银行系统流动性风险总体增大,银行如果想要降低存款提取率对其流动性的影响,就要在银行间市场停止拆出资金、出售政府证券及其他流动资产,并出售潜在的流动性较低的资产.从监管层面来讲,应当通过监管的引导效应将交易性负债进行转化,引导同业借贷和其他证券资产业务向平衡区域集中,并在一定范围内减少银行其他证券资产业务的规模.     

Stochastic interest rate modelling using a single or multiple curves: an empirical performance analysis of the Lévy forward price model

In current financial markets negative interest rates have become rather persistent, while in theory it is often common practice to discard such rates as incredible and irrelevant. However, from a risk management perspective, it is crucially important to financial institutions to properly account for this phenomenon in their Asset Liability Management (ALM) studies. In this paper, we develop a coherent framework on how to best incorporate negative interest rates in these studies through a single curve stochastic term structure model and compare it to its multiple curve analogue. It turns out that, from the wide range of available single curve models, especially the Lévy Forward Price model (LFPM) of Eberlein and Özkan [The Lévy LIBOR model. Financ. Stoch., 2005, 9, 327–348] seems appropriate for ALM purposes. This paper describes an optimisation routine for calibrating this LFPM under the risk-neutral measure in both the single and multiple curve framework to the market prices of interest rate caplets with different strike rates, maturities and tenors. In addition, an empirical performance analysis is made of the single and multiple curve LFPM, where we include four deterministic volatility specifications and provide an explicit parametrisation of a piecewise homogeneity restriction with both deterministic and random breakpoints. This comparative analysis indicates that both the single and multiple curve LFPM is best adopted with the Linear-Exponential Volatility (LEV) specification and that deterministic breakpoints should be included, rather than random breakpoints.     

Consumer deposit demand,interest rate differentials,and public welfare

Empirical estimates of the bank certificate of deposit demand schedule obtained in this study provide the basis for evaluating interest rate deregulation. A Box-Jenkins transfer function estimates bank deposit responses to intraindustry pricing changes and a sensitivity analysis shows microeconomic effects of interest rate differentials. The study concludes that 1) the public substantially subsidizes banks but banks achieve suboptimum deposit levels under thrift differential regulation, 2) removal of deposit rate regulation causes bank deposit demand schedules to shift slowly, not immediately, up with respect to interest rates, and 3) the consumer deposit demand curve is clearly interest elastic.     

金融政策对金融危机的响应——宏观审慎政策框架的形成背景、内在逻辑和主要内容

宏观审慎政策框架是一个动态发展的框架,其主要目标是维护金融稳定、防范系统性金融风险,其主要特征是建立更强的、体现逆周期性的政策体系,其主要内容包括:对银行的资本要求、流动性要求、杠杆率要求、拨备规则,对系统重要性机构的特别要求,会计标准,衍生产品交易的集中清算,等等。本文沿着宏观审慎政策框架形成的背景,内在逻辑关系及主要内容的主线,对金融政策对本次金融危机的各种响应进行梳理,旨在明确逆周期的宏观审慎政策的内涵及意义。     

中国的利率体系与利率市场化改革

利率对宏观经济均衡和资源配置有重要导向意义。央行确定政策利率要符合经济规律、宏观调控和跨周期设计需要。目前,中国的真实利率略低于经济增速,处于较为合理水平。中国已形成较为完整的市场化利率体系,主要通过货币政策工具调节银行体系流动性,释放政策利率调控信号,在利率走廊的辅助下,引导市场基准利率以政策利率为中枢运行,并通过银行体系传导至贷款利率,调节和优化资源配置,实现货币政策目标。中国具备继续实施正常货币政策的条件,将尽可能地延长正常货币政策的时间,目前不需要实施资产购买操作。在市场化利率体系中,收益率曲线非常重要,它反映利率由短及长的期限结构,可为各类金融产品和市场主体提供定价参考。收益率曲线的短端为货币市场基准利率,直接受央行货币政策操作的影响;长端则为国债收益率,主要反映市场对未来宏观经济走势的预期。经过多年发展,我国的国债收益率曲线应用日益广泛,整体趋于成熟,而在市场基础方面还有进一步提升的空间。     

2013年1月银行间市场运行报告

2013年1月,银行间市场整体平稳运行,主要特点是：央行启用公开市场短期流动性调节工具,货币市场利率总体维持在较低水平;债券市场收益率曲线呈陡峭化走势;受国内外经济回暧等因素影响,人民币对美元汇率持续升值并创下历史新高,非美货币即期交易份额下降;利率衍生品成交量同比大幅增长,利率互换曲线陡峭化;汇率衍生品市场交易规模持续扩大,交易汇率震荡趋强。     

Impact of multiple curve dynamics in credit valuation adjustments under collateralization

We present a detailed analysis of interest rate derivatives valuation under credit risk and collateral modeling. We show how the credit and collateral extended valuation framework presented in Pallavicini et al. [Funding valuation adjustment: FVA consistent with CVA, DVA, WWR, collateral, netting and re-hyphotecation, 2011], and the related collateralized valuation measure, can be helpful in defining the key market rates underlying the multiple interest rate curves that characterize current interest rate markets. A key point is that spot Libor rates are to be treated as market primitives rather than being defined by no-arbitrage relationships. We formulate a consistent realistic dynamics for the different rates emerging from our analysis and compare the resulting model performances to simpler models used in the industry. We include the often neglected margin period of risk, showing how this feature may increase the impact of different rates dynamics on valuation. We point out limitations of multiple curve models with deterministic basis considering valuation of particularly sensitive products such as basis swaps. We stress that a proper wrong way risk analysis for such products requires a model with a stochastic basis and we show numerical results confirming this fact.     

Optimal macroprudential policy and rational bubbles

We provide a microfounded framework for the welfare analysis of macroprudential policy within a model of rational bubbles. For this, we posit an overlapping generation model where productivity and credit supply are subject to random shocks. We find that when real interest rates are lower than the rate of growth, credit financed bubbles may be welfare improving because of their role as a buffer in channeling excessive credit supply and inefficient investment at the firms’ level, but their sudden price decrease may cause a systemic crisis. Therefore, a well designed macroprudential policy plays a key role in improving efficiency while preserving financial stability. Our theoretical framework allows us to compare the efficiency of alternative macroprudential policies. Contrarily to conventional wisdom, we show that macroprudential policy (i) may be efficient even in the absence of systemic risk, (ii) has to be contingent on productivity shocks and (iii) must be contingent upon the level of real interest rates.     

货币供应量、利率与银行系统性金融风险——基于CoVaR方法的实证研究

在常态化疫情防控的背景下,商业银行系统性金融风险有上升迹象,这对央行实施货币政策工具和力度的把握提出了更高要求。本文利用条件在险值模型检验了我国货币供应量、利率与银行系统性金融风险的关系。研究结果表明,货币供应量和利率与银行系统性风险之间的关系不是线性的,而是U型的,即存在最优的货币供应量和利率能够使商业银行的系统性金融风险最低。当货币供应量和利率小于这个最优组合时,增加货币供应量和提高利率能够有效降低商业银行的系统性金融风险;而当货币供应量和利率大于这个最优组合时,增加货币供应量和提高利率反而会增加银行系统性金融风险,进而降低商业银行的金融稳定性。     

2014年4月银行间市场运行报告

4月,银行间市场的整体运行特点是：人民币市场资金面整体较为宽松,短期利率先抑后扬：债券市场交投仍显谨慎,收益率曲线平坦化;人民币汇率再创新低,交易汇率年内贬值超过3％;汇率衍生品曲线和人民币利率互换曲线均趋于陡峭化,隐含美元利率持续下降,汇率衍生品交投活跃。     

Financial dollarization: The role of foreign-owned banks and interest rates

Why in many economies households and firms borrow and make deposits in foreign currency? Expanding on the existing literature, our framework addresses this question allowing for interest rate differentials and access to foreign funds to play a role in explaining this process of asset substitution or financial dollarization. Using a newly compiled data set on transition economies and employing a standard panel as well as a panel-VAR methodology we find that increasing access to foreign funds leads to higher credit dollarization, while it decreases deposit dollarization. Interest rate differentials matter for the dollarization of both loans and deposits.     

利差、美元指数与跨境资本流动

一般认为跨境资本流动由利差决定,政策制定也强调利差对资本流动的指示意义。但本文发现,中国跨境资本流动历史上主要是由套汇而非套息资本决定,且套汇的显著指标是多边美元指数(DXY)而非人民币兑美元双边汇率,我们把这一现象称之为“中国的跨境资本流动之谜”。我们提出,汇率影响大于利率且多边汇率影响大于双边汇率的原因在于人民币兑美元双边汇率历史上波动幅度较小,及时和充分反映中美基本面的分化还不够。美元指数是市场指标,能够预示人民币兑美元双边汇率的走势,进而驱动资本流动。进一步研究发现,由于中国经济的外溢效应,中美经济基本面的分化不仅决定中美利差,还在很大程度上驱动美欧、美日经济基本面的分化,进而略有时滞地驱动美元指数。因此,中美利差在统计意义上是美元指数的同步甚至略微领先的指标,从这个意义上讲,政策制定仍要关注利差。随着人民币汇率弹性增强,中美利差和美元指数对中国跨境资本流动的解释力都会边际减弱。     

Financial intermediation in the theory of the risk-free rate

This paper constructs a general equilibrium model of the interaction between financial intermediaries and financial markets that sheds some light on the short-term volatility of real interest rates. The main findings of the paper are as follows. When financial intermediaries issue contingent (non-contingent) liabilities, an increase in the consumers’ relative risk aversion coefficient decreases (increases) the interest rate. Also, the interest rate rises when capitalists are less risk-averse and financial intermediaries are hit by a liquidity shock.     

Market liquidity risk factor and financial market anomalies: Evidence from the Chinese stock market

The Chinese stock market is an order-driven market and hence its characteristics are structurally different from quote-driven markets. There are no studies that consider the role of the market liquidity risk factor in determining cross-sectional stock returns in a model including financial market anomalies for order-driven markets. Our aim is to test whether financial market anomalies such as firm size, the book-to-market ratio, the turnover rate, and momentum both with and without the inclusion of the market liquidity risk factor in the case of the Chinese stock market can explain cross-sectional stock returns. The empirical framework is based on the model proposed by Avramov and Chordia (AC, 2006). Our main finding is that the AC model can capture financial market anomalies except momentum when we include the market liquidity risk factor on the Chinese stock market.     

Understanding liquidity and credit risks in the financial crisis

This paper develops a structured dynamic factor model for the spreads between London Interbank Offered Rate (LIBOR) and overnight index swap (OIS) rates for a panel of banks. Our model involves latent factors which reflect liquidity and credit risk. Our empirical results show that surges in the short term LIBOR-OIS spreads during the 2007-2009 financial crisis were largely driven by liquidity risk. However, credit risk played a more significant role in the longer term (twelve-month) LIBOR-OIS spread. The liquidity risk factors are more volatile than the credit risk factor. Most of the familiar events in the financial crisis are linked more to movements in liquidity risk than credit risk.