Japanese Interest Rate Swap Pricing
AbstractThis paper investigates the two questions on the pricing of interest rate swap in the Japanese market by applying a time varying coefficient regression model: (i) Do the risk factors which determine the spread in the US market also hold in the Japanese market? (ii) How does the degree of sensitivity of the swap spread to the risks vary over time (in particular, focusing on the impact of the "Asian financial crisis" and the "global financial crisis")? Both default risk of counter party and liquidity risk price the swap spread in the Japanese interest rate swap market. But, influences to swap pricing of these two risks are somewhat different. Roughly speaking, liquidity risk plays more important role in shorter maturities and default risk is more important for longer maturities. The above two kind of risks play different roles during the financial crises of the "Asian financial crisis" in 1997 to 1998 and the "global financial" crisis from 2007. The liquidity risk was a key factor in the former crisis, but not in the latter crisis for longer maturities. Default risk of LIBOR does not clearly display any determinants in the Japanese markets.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Graduate School of Economics and Management, Tohoku University in its series TERG Discussion Papers with number 253.
Length: 26 pages
Date of creation: Feb 2010
Date of revision:
Contact details of provider:
Postal: Kawauchi, Aoba-ku, Sendai 980-8476
Web page: http://www.econ.tohoku.ac.jp/econ/english/index.html
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Titman, Sheridan, 1992.
" Interest Rate Swaps and Corporate Financing Choices,"
Journal of Finance,
American Finance Association, vol. 47(4), pages 1503-16, September.
- Sheridan Titman, 1990. "Interest rate swaps and corporate financing choices," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
- Charles S. Morris & Robert Neal & Douglas Rolph, 1998. "Credit spreads and interest rates : a cointegration approach," Research Working Paper 98-08, Federal Reserve Bank of Kansas City.
- Rockinger, Michael & Urga, Giovanni, 2000. "The Evolution of Stock Markets in Transition Economies," Journal of Comparative Economics, Elsevier, vol. 28(3), pages 456-472, September.
- Cooper, Ian A & Mello, Antonio S, 1991. " The Default Risk of Swaps," Journal of Finance, American Finance Association, vol. 46(2), pages 597-620, June.
- Afonso, Antonio & Strauch, Rolf, 2007.
"Fiscal policy events and interest rate swap spreads: Evidence from the EU,"
Journal of International Financial Markets, Institutions and Money,
Elsevier, vol. 17(3), pages 261-276, July.
- Afonso, António & Strauch, Rolf, 2004. "Fiscal policy events and interest rate swap spreads: evidence from the EU," Working Paper Series 0303, European Central Bank.
- Rockinger, Michael & Urga, Giovanni, 2001. "A Time-Varying Parameter Model to Test for Predictability and Integration in the Stock Markets of Transition Economies," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 73-84, January.
- In, Francis & Brown, Rob & Fang, Victor, 2003. "Modeling volatility and changes in the swap spread," International Review of Financial Analysis, Elsevier, vol. 12(5), pages 545-561.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tohoku University Library).
If references are entirely missing, you can add them using this form.