Consumer Interest Rate Research Articles

Correlation Financial Option Pricing Model and Computer Simulation under a Stochastic Interest Rate

With the continuous expansion of the consumer interest rate market today, the risks brought by interest rate fluctuations have had a huge and far-reaching impact on the financial markets of many countries and it is becoming more and more important to simulate the pricing of financial options. In the traditional pricing model of financial options, the pricing standard of the pricing model is generally set as a financial product with random disturbance characteristics and the market price of its transaction does not follow the arbitrage principle of financial product pricing. It is easy to generate errors and cause risks, and the accuracy of traditional financial option pricing models is not high, and the simulation time is long, which greatly reduces the rate of financial transactions. To improve the accuracy of option pricing models, this paper uses computer simulation technology to simulate the pricing of correlated financial options under stochastic interest rates. From the four aspects of error, risk parameters, success rate, and simulation time, it is tested to observe the influence of computer simulation technology on the financial option pricing model. The final results show that by using computer simulation technology, the error of the correlation financial option pricing model under the random interest rate is reduced, the success rate is improved, the risk parameter is reduced by 3.03%, and the simulation time is reduced by 0.605 seconds.

Determinants of housing inflation in Turkey: a conditional frequency domain causality

PurposeThis study aims to investigate whether changes in consumer interest rate, exchange rate and housing supply have permanent effects on housing inflation in Turkey.Design/methodology/approachFor this purpose, data from 2010M01 to 2020M06 and changes in consumer interest rate, exchange rate, housing supply and housing inflation were used. Relationships between variables are analyzed first by the Granger causality tests and then the conditional frequency domain causality tests. The conditional frequency domain causality test specifically reveals the permanent causality between variables, whether there is a permanent effect.FindingsAccording to the Granger causality test results, there are causality relationships from changes in the consumer interest rate and exchange rate to housing inflation. However, there is no causality relationship between housing supply and housing inflation. According to the conditional frequency domain causality test results, there is causality for the permanent and mid-term from changes in the consumer interest rate to housing inflation and causality for the mid-term and temporary from changes in the exchange rate to housing inflation. Additionally, it was found that there are causality relationships between changes in the consumer interest rate and changes in the exchange rate.Research limitations/implicationsThe first limit of the study is that only 2010M01-2020M06 months can be considered. Because the date that variables started common is 2010M01. Besides, there is a limit in the study in variables used. Many variables, both micro and macro, can be added to affect housing inflation.Originality/valueHousing inflation is a remarkable issue in Turkey. There is an increase in the number of studies on the subject in recent years. For this reason, the study is trying to contribute by approaching the subject from a different angle. The most important contribution of the study is that it has not been investigated whether the determinants of housing inflation have permanent or temporary effects, which were not done in previous studies. In addition, the method used reveals how many months the effects of changes in exchange rates, consumer interest rates and housing supply on housing inflation last. Based on the findings obtained from the methods, important economic and political implications have been put forward in depth.

Consumer Interest Rates and Retail Mutual Fund Flows

This paper documents a link between the real and financial sides of the economy. We find that retail equity mutual fund flows in Canada are negatively related to current and past changes in a component of the prime and 5-year mortgage rates that is uncorrelated with government rates.

Interest Rate Asymmetries in Long-Term Loan and Deposit Markets

Studies of U.S. loan and deposit markets have found that consumer interest rates respond asymmetrically to changes in market rates. If this finding is repeated across many different consumer finance product markets, then it could have important implications for the transmission mechanism of monetary policy. This paper tests for significant interest rate asymmetries in consumer finance markets that differ markedly from those examined in the existing literature. The main result of this paper is to reject the hypothesis of significant asymmetries in most (but not all) of the longer-term loan and deposit markets examined in Canada and the United States. This indicates that the explanations for asymmetries given in the literature are not generalizable across different product markets in different countries.

The Effect of Consumer Interest Rate Deregulation on Credit Card Volumes, Charge-Offs, and the Personal Bankruptcy Rate

The rising level of credit card debt is often cited as one of the factors in the rising U.S. personal bankruptcy rate. Numerous theories have been advanced to explain the increases, including aggressive marketing by credit card issuers and a lack of discipline on the part of consumers. These explanations do not address the underlying reason for these trends. This paper argues that a 1978 Supreme Court decision (Marquette) fundamentally altered the market for credit card loans in a way that significantly expanded the availability of credit and increased the average risk profile of borrowers. Marquette ushered in deregulation of usury ceilings on consumer interest rates by allowing lenders in a state with liberal usury ceilings to export those rates to consumers residing in states with more restrictive usury ceilings. The result was a substantial expansion in credit card availability, a reduction in average credit quality, and a secular increase in personal bankruptcies. The Canadian experience with bankruptcies supports this argument. This paper contends that a tightly regulated world, marked by restricted access to consumer credit and a low level of personal bankruptcies was exchanged for a deregulated world, marked by expanded access to consumer credit and a higher level of personal bankruptcies. This argument implies that a return to the bankruptcy rates and charge-off levels that prevailed in the early 1980s or before may be unlikely.

Reassessing the government's discount rate policy in light of new theory and data in a world economy with a high degree of capital mobility

The paper reexamines the government's discount rate policy in the context of new evidence on international capital mobility, the relationship between deficits and interest rates, the relationship between consumer interest rates and the consumer's rate of time preference, and intergenerational compensation. It concludes that the approximate discount rate for government decisions will differ depending on the policy problem and that the government's borrowing rate is appropriate in some cases and in others the private rate should be used. For long term policies, the benefit-cost rationale for discounting breaks down and must be reestablished on principles incorporating intergenerational equity.