Credit risk of interest rate swaps : a comparative study of CIR and Monte Carlo simulation approach

This paper compares the credit risk profile for two types of model, the Monte Carlo model used in the existing literature, and the Cox, Ingersoll and Ross (CIR) model. Each of the profiles has a concave or hump-backed shape, reflecting the amortisation and diffusion effects. However, the CIR model generates significantly different results. In addition, we consider the sensitivity of these models of credit risk to initial interest rates, volatility, maturity, kappa and delta. The results show that the sensitivities vary across the models, and we explore the meaning of that variation.

Volatility dynamics in the term structure of Latin American sovereign international bonds

We examine the nature of volatility dynamics in the term structure of sovereign bonds issued in international markets by major Latin American countries. Focusing only on the U.S. dollar-denominated sovereign international bonds, this study shows the heterogeneous nature of volatility effects that affect the term structure of individual countries in Latin America. Considering the significance of the Argentine credit event in the region, we also account for any change in dynamics following the Argentine default in 2001 by subsampling the pre- and postdefault windows. We also find some evidence of liquidity-driven volatility interaction in the term structure.

Further evidence on the corporate use of derivatives in Australia : the case of foreign currency and interest rate instruments

In a recent issue of this journal Nguyen and Faff (2002) reported on an empirical exploration of the motives behind the aggregate use of financial derivatives by Australian companies. Employing the same sample of firms, the current paper extends their analysis to investigate similar issues, this time focussing separately on foreign currency and interest rate derivatives. At a specific level, our results reveal the following. A firm is more likely to use foreign currency derivatives if it is large and has more debt in its capital structure. Interest rate derivatives, on the other hand, are more likely to be used if a firm is larger, more levered, more liquid and pays higher dividends. These results are consistent with existing hedging theories. Market to book value (proxying growth opportunities), however, portrays an inconsistent relationship with the likelihood of interest rate derivative usage. When it comes to the extent of usage, a firm uses foreign currency derivatives more extensively if it is smaller, pays higher dividends and has more debt. Similarly, interest rate derivatives are used more extensively to address a high level of debt and a high dividend payout policy. At a general level, the current study confirms the core finding of Nguyen and Faff (2002), namely, that Australian companies use derivatives with a view to value maximisation.

Australian and US interest rate swap markets : comparison and linkages

We investigate and compare the determinants of US and Australian interest rate swap spreads and the linkages between these markets. The slope of the risk-free term structure is the most significant determinant and its importance is greater for longer terms to maturity. Interest rate levels and, in Australia, the default premium also have some impact. The influences of interest rate volatility, the liquidity premium and (in the USA) the default premium are small or negligible. We hypothesise, and our evidence confirms, that the US swap market significantly affects the Australian swap market but not vice-versa.

An empirical analysis of the Australian dollar swap spreads

This paper examines the relationship between the Australian dollar interest rate swap spread and the term structure of the interest rates, and also the determinants of interest rate swap spreads. For this purpose, we estimate the term structure of interest rates using the parsimonious fitting function of Nelson and Siegel [Journal of Business 60 (1987) 476] for the Australian government bonds and Australian interest rate swaps for certain maturities that are not available. We analyse the swap spread over the term structure of the government bonds and how changes in swap determinants affect the changes in swap spreads. The sample period covers the daily interval from 6 December 1996 to 31 December 1999.

Testing the expectations hypothesis for interest rate term structure : some Australian evidence

Many test results are found inconsistent with the expectations hypothesis of the term structure. The aim of this paper is to re-examine the expectations hypothesis of the term structure using the Australian interest rate data from 1969(7) to 1995(7). We start with the cointegration test on R_t, r_t, and S_t followed by the Granger causality test from S_t to ∇ r_t. Finally we carry out the VAR model of cross-equation restrictions test. Our findings show that there is no conclusive rejection of the expectations hypothesis of the term structure.

Low-frequency volatility of yen interest rate swap market in relation to macroeconomic risk

Using ‘low-frequency’ volatility extracted from aggregate volatility shocks in interest rate swap (hereafter, IRS) market, this paper investigates whether Japanese yen IRS volatility can be explained by macroeconomic risks. The analysis suggests that this low-frequency yen IRS volatility has strong and positive association with most of the macroeconomic risk proxies (e.g., volatility of consumer price index, industrial production volatility, foreign exchange volatility, slope of the term structure and money supply) with the exception of the unemployment rate, which is negatively related to IRS volatility. This finding is fairly consistent with the argument that the greater the macroeconomic risk the greater is the use of derivative instruments to hedge or speculate. The relationship between the macroeconomic risks and IRS volatility varies slightly across the different swap maturities but is robust to alternative volatility specifications. This linkage between swap market and macroeconomy has practical implications since market makers and hedgers use the swap rate as benchmark for pricing long-term interest rates, corporate bonds and various other securities.

‘Interest’ in Kierkegaard’s structure of consciousness

Kierkegaard’s identification of “consciousness” with “interest” (interesse) in his unfinished work Johannes Climacus adds a distinctive dimension to his phenomenology of subjectivity. Commentators, however, have largely identified interesse with lidenskab (“passion”), a conflation I argue to be mistaken, or have otherwise failed to note the structural implications of interesse for Kierkegaard’s account of cognition. I draw out these implications and argue that the Climacan account of interest as the experience of finding ourselves in-between ideality and reality implies, in the context of Kierkegaard’s trichotomous ontology of consciousness, a form of non-thetic self-referentiality built into cognition itself. This self-referentiality also has the intriguing implication of making consciousness itself inherently teleological.

Effects of quenching rate on amorphous structures of Cu46Zr54 metallic glass

Metallic glass shows some superior properties different from crystalline, but the nature of amorphous structure and structural change during glass transition have not been completely understood yet. Molecular dynamics simulation provides intuitive insight into the microstructure and properties at atomistic level. Before probing into the microstructures of metallic glass with molecular dynamics (MD) simulation, it is important to obtain amorphous state first. In the current work, we reproduce the process of manufacturing metallic glass in laboratory including the melting, equilibrating and quenching procedure with molecular dynamics simulations. The structure changing at melting point and glass transition temperature are investigated with the different cooling processing. The partial radial distribution function (PRDF) is applied as a criterion to judge the final amorphous state obtained considering the quenching at different cooling rates and the effects of cooling rate on the formation of amorphous structures are further discussed.

Annual variation in the distribution of summer snowdrifts in the Kosciuszko alpine area, Australia, and its effect on the composition and structure of alpine vegetation

Australian alpine ecosystems are expected to diminish in extent as global warming intensifies. Alpine vegetation patterns are influenced by the duration of snow cover including the presence of snowdrifts in summer, but there is little quantitative information on landscape-scale relationships between vegetation patterns and the frequency of occurrence of persistent summer snowdrifts in the Australian alps. We mapped annual changes in summer snowdrifts in the Kosciuszko alpine region, Australia, from Landsat TM images and modelled the frequency of occurrence of persistent summer snowdrifts from long-term records (1954–2003) of winter snow depth. We then compared vegetation composition and structure among four classes that differed in the frequency of occurrence of persistent summer snowdrifts. We found a curvilinear relationship between annual winter snow depth and the area occupied by persistent snowdrifts in the following summer (r²=0.9756). Only 21 ha (0.42% of study area) was predicted to have supported summer snowdrifts in 80% of the past 50 years, while 440 ha supported persistent summer snow in 10% of years. Mean cover and species richness of vascular plants declined significantly, and species composition varied significantly, as the frequency of summer snow persistence increased. Cushion plants and rushes were most abundant where summer snowdrifts occurred most frequently, and shrubs, grasses and sedges were most abundant in areas that did not support snowdrifts in summer. The results demonstrate strong regional relationships between vegetation composition and structure and the frequency of occurrence of persistent summer snowdrifts. Reductions in winter snow depth due to global warming are expected to lead to substantial reductions in the extent of persistent summer snowdrifts. As a consequence, shrubs, grasses and sedges are predicted to expand at the expense of cushion plants and rushes, reducing landscape vegetation diversity. Fortunately, few vascular plant species (e.g. Ranunculus niphophilus) appear to be totally restricted to areas where summer snow occurs most frequently. The results from this study highlight potential indicator species that could be monitored to assess the effects of global warming on Australian alpine environments.

Effects of quenching rate on amorphous structures of Cu46Zr54 metallic glass

Metallic glass shows some superior properties different from crystalline, but the nature of amorphous structure and structural change during glass transition have not been completely understood yet. Molecular dynamics simulation provides intuitive insight into the microstructure and properties at atomistic level. Before probing into the microstructures of metallic glass with molecular dynamics (MD) simulation, it is important to obtain amorphous state first. In the current work, we reproduce the process of manufacturing metallic glass in laboratory including the melting, equilibrating and quenching procedure with molecular dynamics simulations. The structure changing at melting point and glass transition temperature are investigated with the different cooling processing. The partial radial distribution function (PRDF) is applied as a criterion to judge the final amorphous state obtained considering the quenching at different cooling rates and the effects of cooling rate on the formation of amorphous structures are further discussed.

Structure of unemployment in country Victoria

Investigates the extent of structural unemployment in country Victorian regions through analysing labour force statistics by region, industry, age, gender and occupation. It was found that female workers in country Victoria and the young are the most likely to be structurally unemployed. There are indications that the structural unemployment problem is getting worse despite the continued fall in the unemployment rate.

Interest rate risk management using matching techniques

Explores the technique of matching asset and liability cash flows, including its applicability to the management of a pension fund. Explains a new procedure for interest rate risk management. Incorporates a study of the Metallgesellschaft case.

Long-term effects of a playground markings and physical structures on children's recess physical activity levels

Objective : The aim of the study was to investigate the impact of a playground redesign intervention across time on children's recess physical activity levels using combined physical activity measures and to evaluate the potential influence of covariates on the intervention effect.

Method : Fifteen schools located in areas of high deprivation in one large city in England each received £20,000 through a national £10 million Sporting Playgrounds Initiative to redesign the playground environment based on a multicolored zonal design. Eleven schools served as matched socioeconomic controls. Physical activity levels during recess were quantified using heart rate telemetry and accelerometry at baseline, 6 weeks and 6 months following the playground redesign intervention. Data were collected between July 2003 and January 2005 and analyzed using multilevel modeling.

Results : Statistically significant intervention effects were found across time for moderate-to-vigorous and vigorous physical activity assessed using both heart rate and accelerometry.

Conclusions : The results suggest that a playground redesign, which utilizes multicolor playground markings and physical structures, is a suitable stimulus for increasing children's school recess physical activity levels.