Presence Of Interest Rates Research Articles

The Dynamic Relationship Between Exchange Rate Volatility and Stock Prices in the Egyptian Real Estate Market and the Moderating Effect of Interest Rates

Among different channels of the financial market, the exchange rates and stock markets play a vital role in the domestic and international markets. This study aims to explore the dynamic relationship between the exchange rate (USD/EGP) and the real estate sector listed companies of the Egyptian Stock Exchange (EGX) from 2013 to 2023. Additionally, the study examines the moderating effect of interest rates on the relationship. To achieve this, the study employs several econometric methods such as Augmented Dicky Fuller (ADF) test, Granger Causality test to determine the direction of the relationship, Vector Autoregressive (VAR) model, and more. The results demonstrate that a long-run relationship exists between the variables. Furthermore, there is a significant unidirectional causality that runs from the exchange rate to real estate stock prices; thus, fluctuations in the exchange rate can significantly affect the profitability of investments in real estate stocks. Therefore, investors should closely monitor the movements in the exchange rate level to predict changes in real estate stock prices. When including the interest rate as a moderator, the outcome changes to bidirectional causality, meaning that the exchange rate and real estate stock price movements affect each other at a 1% significance level. Hence, interest rate could be used as an instrument to control demand in both the stock market and foreign exchange market. Finally, it is recommended that policymakers use the monetary policy while considering this bidirectional relationship in the presence of interest rate as a moderating variable.

Optimal Dividend and Issuance of Equity Policies in the Presence of Interest

We investigate the dividend and equity issuance problem in the presence of interest rate. The evolution of the financial reserves of an insurance company, where management payout dividends and issue new equity, is described by a stochastic differential equation. The work of Lokka and Zervos [1] is extended by including the interest rate component into the model in order to make the model more realistic. The aim is to maximise the expected discounted dividends pay-out until the time of bankruptcy. In order to investigate this problem, the stochastic control theory for diffusion processes will be used. In order to handle the problem, the Hamilton-Jacobi-Bellman equation (HJB) is derived and solved. The second order ordinary differential equation associated with the problem turns out to belong to the class of Kummer’s confluent hyper-geometric differential equations. This category of equations is not easy to solve. The equation is non-dimensionalised and change of variables is effected in two different stages. The results show that interest rate affected the rate at which the value function and threshold level change.

Factors Determining the Exchange Rate Movement under a Partial Capital Mobility Regime

The study examines the rupee–US dollar exchange rate (Rs/$) behaviour in the presence of increasing and ample capital inflows in the post-reform period in India. Using monthly data (1994:4 to 2007:8) the study estimates a basic exchange rate model in a time series framework in order to assess the relative significance of capital inflows in the presence of interest rate, inflation rate and growth rate differentials and other factors (forward exchange rate/expected exchange rate) in influencing the rupee–dollar exchange rate behaviour. It finds the dominance of foreign institutional investments affecting the rupee–dollar exchange rate and, to a certain extent, it is seen that the influence of the growth rate differential affects the exchange rate behaviour in India.

The Gerber-shiu Expected Discounted Penalty-reward Function under an Affine Jump-diffusion Model

We provide a unified analytical treatment of first passage problems under an affine state-dependent jump-diffusion model (with drift and volatility depending linearly on the state). Our proposed model, that generalizes several previously studied cases, may be used for example for obtaining probabilities of ruin in the presence of interest rates under the rational investement strategies proposed by Berk & Green (2004).

Optimal Life-Cycle Strategies in the Presence of Interest Rate and Inflation Risk

The worldwide shift from public pay-as-you-go pension systems to privately funded pension schemes is accompanied by a huge increase in the households capital stock mounting to trillions of dollars worldwide which pour into defined contribution pension plans. In order to assess how these funds should be optimally invested, we derive the optimal time-dependent portfolio allocation strategy taking into account long-term stock market, term structure, and inflation risk. Our results confirm that the often advised so-called life-cycle strategy is optimal if non-financial wealth is taken into account. We also benchmark common longterm defined contribution asset allocation strategies relative to the optimum in order to the assess welfare implications for varying investment horizons and risk aversions. The outcome of utility heavily depends on whether the risk aversion of the investor is estimated appropriately. Misestimation of this parameter and hence wrong investment advice can lead to utility losses of around 60 percent in terms of certainty equivalent wealth.

The Gerber-shiu Expected Discounted Penalty-reward Function under an Affine Jump-diffusion Model

We provide a unified analytical treatment of first passage problems under an affine state-dependent jump-diffusion model (with drift and volatility depending linearly on the state). Our proposed model, that generalizes several previously studied cases, may be used for example for obtaining probabilities of ruin in the presence of interest rates under the rational investement strategies proposed by Berk & Green (2004).

The Value of Deposit Insurance in the Presence of Interest Rate and Credit Risk

In this paper we employ the theory of the term structure of interest rates and the pricing of interest contingent contracts to determine the fair value of insurance for depository institutions. The balance sheet of a bank is taken to consist of long and short positions in various fixed income securities. Deposit insurance for the bank is a put option on the value of the assets. The value of deposits, assets, the implied exercise price of the put and the value of the put are all determined simultaneously as part of the same valuation solution. The approach is developed initially for a single‐state term structure. It is extended to incorporate credit risk on bank assets.The most important policy implication is that for a bank whose assets are longer term than its liabilities and whose borrowers are not excessively leveraged the properly calculated, risk‐adjusted deposit insurance premia are increasing functions of the level of interest rates. Sensitivity analyses also treat such factors as the bank's deposit to asset ratio, duration gap, interest volatility, the volatility of assets backing the bank loans, and the bank's borrowers’ debt to equity ratio.

The identification of monetary policy disturbances explaining the liquidity puzzle

This paper examines recent work on the identification of monetary policy disturbances. Its main finding is that the empirical anomalies found in the literature reflect a failure to properly address the Federal Reserve's policy of accommodating reserve demand shocks. A new method of identifying monetary policy using nonborrowed reserves is proposed. Using this specification — policy has a strong persistent liquidity effect regardless of subsample — policy Granger-causes output even in the presence of interest rates, explaining approximately 49% of the variance in output at a two-year horizon — and the residual explanatory power of interest rates for output is negligible.