Roll-over risk in the South African interest rate market

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dc.contributor.advisorAlfeus, Mesiasen_ZA
dc.contributor.authorvon Ahlften, Edelaen_ZA
dc.contributor.otherStellenbosch University. Faculty of Economic and Management Sciences. Dept. of Statistics and Actuarial Science.en_ZA
dc.date.accessioned2022-11-17T04:57:17Z
dc.date.accessioned2023-01-16T12:44:17Z
dc.date.available2022-11-17T04:57:17Z
dc.date.available2023-01-16T12:44:17Z
dc.date.issued2022-12
dc.descriptionThesis (MCom)--Stellenbosch University, 2022.en_ZA
dc.description.abstractENGLISH SUMMARY: This research assignment entails applying and extending the framework of Alfeus et al. (2020) to conduct an empirical analysis of the presence of roll-over risk in the emerging South African interest market. Alfeus et al. (2020) started from the observation that the swap basis spreads persistent in the market since the Global Financial Crisis of 2008 contradict classic arbitrage arguments and developed a framework where the spreads persist as a result of the presence of roll-over risk. This is the risk one might not be able to refinance (“roll over”) debt at the prevailing market rate when funding longer-term lending by shorter-term borrowing. Roll-over risk is explicitly modelled as a spread added to the overnight borrowing cost and can be modelled as a single risk by calibrating to Overnight Index Swaps (OIS), Interest Rate Swaps (IRS), and basis swaps, or separated into a “credit downgrade risk” and a “funding liquidity risk” component by adding Credit Default Swaps (CDS) to the set of calibration instruments. In South Africa, interest rate swaps referencing the 3-month Johannesburg Interbank Average Rate (JIBAR) are liquidly traded; there is, however, neither a liquid OIS nor CDS market. The framework of Alfeus et al. (2020) is therefore implemented in the South African market by first estimating the South African rand (ZAR) OIS curve, then calibrating the model to this curve and interest rate swaps referencing the 3-month JIBAR. The modelling from Alfeus et al. (2020) is extended by utilizing a term structure model with deterministic jumps when specifying the stochastic dynamics for the model variables.en_ZA
dc.description.abstractAFRIKAANSE OPSOMMING: Hierdie navorsingsopdrag pas die raamwerk van Alfeus et al. (2020) toe en brei dit uit ten einde ‘n empiriese ontleding te doen van die teenwoordigheid van oorrolrisiko (“roll-over risk”) in die Suid-Afrikaanse rentekoers mark. Die raamwerk het ontstaan nadat dit waargeneem is dat die verskynsel dat die spreidings tussen rentekoerse met verksillende onderliggende frekwensies van betaling, in die mark sedert die Finansieele Krisis van 2008, klassieke arbitrage-argumente weerspreek. Alfeus et al. (2020) het ’n raamwerk ontwikkel waar die spreidings wat verskyn in die mark veroorsaak word deur die teenwoordigheid van oorrolrisiko (“roll-over risk”). Dit is die risiko dat ’n mens dalk nie skuld teen die heersende markkoers kan herfinansier (“oorrol”) wanneer langertermynlenings deur kortertermynlenings befonds word nie. Oorrolrisiko word uitdruklik gemodelleer as ‘n verspreiding wat by die oornagleenkoste gevoeg word en kan as ‘n enkele risiko gemodelleer word deur te kalibreer na oornagindeksruiltransaksies (“Overnight Index Swaps (OIS)”), rentekoersruiltransaksies (“Interest Rate Swaps (IRS)”) en basisruiltransaksies (“basis swaps”), of geskei in ’n ”krediet risiko”-komponent en ’n ”finansieringslikiditeitsrisiko”-komponent deur Kredietverstekruiltransaksies (“Credit Default Swaps (CDS)”) by die stel kalibrasie-instrumente te voeg. In Suid-Afrika word 3-maande Johannesburg Interbank Gemiddelde koers (JIBAR) rentekoersruiltransaksies, likied verhandel, daar is egter nie ’n likiede OIS- of CDS-mark nie. Die raamwerk van Alfeus et al. (2020) word dus in die Suid-Afrikaanse mark geimplementeer deur eers die Suid-Afrikaanse rand (ZAR) OIS-kurwe te beraam, dan die model te kalibreer na hierdie kurwe en 3-maande JIBAR rentekoersruiltransaksies. Die modellering van Alfeus et al. (2020) word uitgebrei deur gebruik te maak van ‘n termstruktuurmodel met deterministiese spronge wanneer die stogastiese prosesse vir die modelveranderlikes gespesifiseer word.af_ZA
dc.description.versionMasters
dc.format.extentxii, 57 pages : illustrations, includes annexures
dc.identifier.urihttp://hdl.handle.net/10019.1/125984
dc.language.isoen_ZAen_ZA
dc.publisherStellenbosch : Stellenbosch University
dc.rights.holderStellenbosch University
dc.subjectInterest Ratesen_ZA
dc.subjectRoll-over Risken_ZA
dc.subjectInterest rate swaps -- South Africaen_ZA
dc.subjectDerivative securities -- South Africaen_ZA
dc.subjectFinancial risk management -- South Africaen_ZA
dc.subjectUCTD
dc.titleRoll-over risk in the South African interest rate marketen_ZA
dc.typeThesisen_ZA
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