3. Electronic Theses and Dissertations (ETDs) - All submissions
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Item The yield curve as a predictor of real output and inflation: evidence from emerging markets(2017) Kobo, Sylvester BokganetsweFor developed economies, it has been shown that the slope of the yield curve is a good indicator of the future path of real output and inflation. This paper investigates the predictive abilities of the yield curve slope for domestic growth and inflation in emerging market economies. Given the sovereign risk premia in these economies, it also assesses whether adding the sovereign risk spread to the yield curve spread improves the predictive content of the yield curve. It finds that the yield curve can predict real output at both the short and long forecasting horizons in emerging economies, the extent of which differs across countries. It also finds that the predictive performance for inflation is weaker than that of output growth, especially in the shorter forecasting horizons, and that the sovereign risk spread has additional predictive content for growth and inflation. This suggests that market participants and monetary policy makers in these economies should supplement their forecasting models with information contained in the yield curve to forecast domestic growth and inflation.Item Reviewing a framework to price a credit risky derivative post the credit crisis(2014-06-12) Hunzinger, C.BThe period between 2008 and 2009 was an interesting and dramatic time for financial markets. This period marked the beginning of the financial tsunami that would plague global markets for many years to come. This economic meltdown had massive effects on many everyday issues such as house prices, interest rates and inflation. Investment banks were also affected with numerous investment banks either defaulting or being taken over by the U.S. Federal Reserve to avoid default. This group of investment banks include names such as Lehman Brothers, Bear Sterns, Fannie Mae, Freddy Mac and many more. The myth of “too big to fail” was tested and failed because of the number of banks that were allowed to default during the crisis. Many things have changed because of the crisis. One area in finance that has changed is the pricing of financial derivatives. The realisation that huge investment banks can default has dried up the liquidity in capital markets. Therefore banks cannot borrow a shortfall of cash at a risk-free rate anymore but rather at a significant spread over the risk-free rate. The risk-free rate is a core concept of derivative pricing. If investment banks cannot borrow and lend at the risk-free rate then the Black-Sholes-Merton theory laid down in the 1970’s may not be applicable post the credit crisis. The aim of this dissertation is to review the framework of Piterbarg, Burgard and Kjaer to price a general derivative post the credit crisis. This review includes a variety of numerical methods to implement the framework.