We study the implications of deviations from covered interest rate parity for international capital flows using novel data covering euro-area derivatives and securities holdings. Consistent with a dynamic model of currency risk hedging, we document that investors' holdings of USD bonds decrease...

As life expectancy increases, pension plans face growing longevity risk. Standardized longevity-linked securities such as survivor contracts allow pension plans to transfer this risk to capital markets. However, more consensus is needed on the appropriate mortality model and premium principle to...

This paper examines the transition from LIBOR to SOFR in the US and maps out the consequences for European corporate treasurers by showing how the application of SOFR in cash products and derivatives differs from LIBOR. As interest rate and cross-currency swaps transition to compounded SOFR,...

This paper studies market liquidity in interest rate swaps (IRS) before and during the global tightening of monetary policy. IRS constitute the single largest derivatives segment globally. Banks and Pension Funds extensively rely on IRS to hedge interest rate risk. Hence, providing an...

This paper analyzes the dynamics of Canadian dollar-denominated (CAD) interest rate swap yields. It applies autoregressive distributive lag (ARDL) models, using monthly time series data, to estimate the effects of the current short-term interest rate and other relevant macro-financial variables...

This article measures the degree of potential de-anchoring of inflation expectations in the euro area vis-à-vis the inflation objective of the European Central Bank (ECB). A no-arbitrage term structure model that allows for a time-varying long-term mean of inflation expectations, π∗ t , is...

We build a novel term structure model for pricing synthetic euro area core inflation-linked swaps, a hypothetical swap contract indexed to core inflation. Our approach relies on a term structure model of traded headline inflation-linked swap rates, which we assume span core inflation. The model...

The aim of this note is to help stakeholders optimize their decision-making on when, where, and how to use debt-for-development swaps ("debt swaps"), ensuring they bring the intended benefits to all parties involved. It also proposes new approaches to structure these mechanisms, making them less...

The effects of stochastic volatility, jump clustering, and regime switching are considered when pricing variance swaps. This study established a two-stage procedure that simplifies the derivation by first isolating the regime switching from other stochastic sources. Based on this, a novel...

This paper econometrically models the dynamics of Indian rupee (INR) swap yields based on key macroeconomic factors using the autoregressive distributive lag (ARDL) approach. It examines whether the short-term interest rate has a decisive influence on long-term INR swap yields after controlling...

This paper examines the dynamics of euro-denominated (EUR) long-term interest rate swap yields. It shows that the short-term interest rate has an economically and statistically significant effect on EUR swap yields of different maturity tenors, after controlling for various key macroeconomic...

We build a novel term structure model for pricing synthetic euro area core inflation-linked swaps, a hypothetical swap contract indexed to core inflation. Our approach relies on a term structure model of traded headline inflation-linked swap rates, which we assume span core inflation. The model...

The expansion of bilateral swap arrangements (BSAs) since the Global Financial Crisis has led to a substantial reconfiguration of the Global Financial Safety Net (GFSN). This paper examines the drivers of BSA supply using a novel dataset on all publicly documented BSAs. It finds that countries...

This article measures the degree of potential de-anchoring of inflation expectations in the euro area vis-à-vis the inflation objective of the European Central Bank (ECB). A no-arbitrage term structure model that allows for a time-varying long-term mean of inflation expectations, π୲ ∗, is...

The main focus of this paper is a comprehensive overview of the US$ reference rate reform, with a particular focus on its implications for USD interest rate swaps (IRS). This paper aims to shed light on the current situation and future developments in a changing financial landscape. This paper...

We propose a new model to decompose inflation swaps into genuine inflation expectations and risk premiums. We develop a no-arbitrage term structure model with stochastic endpoints, separating macroeconomic variables into transitory parts and long-run, economically grounded determinants, such as...

According to the efficient-market hypothesis, forecasts derived from efficient market prices should be unbeatable. However, numerous institutions, including the European Central Bank, regularly publish forecasts for future inflation that deviate from market expectations. We investigate the...

This paper models the dynamics of Chinese yuan (CNY)-denominated long-term interest rate swap yields. The financial sector plays a vital role in the Chinese economy, which has grown rapidly in the past several decades. Going forward, interest rate swaps are likely to have an important role in...

The ISDA designed fallback for cash-settled swaptions with collateral discounting generates swap rate and term structure dependent exotics. To analyse precisely the fallback impact a full term structure of rates and volatility modelling is required. A recent paper Bang and Daboussi (2022)...

This article discusses the problem of pricing discretely sampled variance swaps under the Heston stochastic volatility model with stochastic interest rate and stochastic dividend yield. In particular, our modelling framework consists of a stochastic interest rate driven by Hull-White (HW) or...

Considering the fair strike values of variance and volatility swaps, we use a stochastic volatility model in which the log volatility is given by a fractional Ornstein-Uhlenbeck process with two versions; a stationary version and a version with a deterministic initial value. Under these...

In this article, we test performance persistence and measure the historical, the implied volatility, the credit spread volatility and the value at risk,VaR, of the credit derivatives swaptions contracts. We examine contracts of US leveraged loans, mortgage backed securities, high grade corporate...

The political economy literature shows that monetary hegemony guarantees significant privileges to a country's economy — governments gain greater flexibility in their budgetary and current accounts without incurring significant macroeconomic imbalances. Such greater economic policy flexibility...

We ask whether banks use interest rate swaps to hedge the interest rate risk of their assets, primarily loans and securities. To this end, we use regulatory data on individual swap positions for the largest 250 U.S. banks. We find that the average bank has a large notional amount of $434...

The paper examines the usage of the Renminbi (RMB) as an international payment currency. Globally, the use of RMB remains small, accounting for 2 percent of total cross-border transactions. Using country-level transaction data from Swift** for 2010–21, we find significant regional variations...

In this paper the zero vanna implied volatility approximation for the price of freshly minted volatility swaps is generalized to seasoned volatility swaps. We also derive how volatility swaps can be hedged using a strip of vanilla options with Gaussian weights. For the family of stochastic...

The purpose of this paper is to review the literature on inflation-adjusted bonds, swaps, and derivatives. The methodology for valuation and risk management of these securities is an application of the foreign currency extension of a standard HJM term structure model. The two “currencies” in...

ow do credit default swaps (CDS) affect sovereign debt markets? The answer depends crucially on trading frictions, risk-sharing, arbitrage violations, and spillovers from secondary to primary markets. We propose a sovereign default model where investors trade bonds and CDS over the counter via...

Following the 2007-09 financial crisis, dollar funding issues in the euro area reemerged during the first half of 2010. By late April, problems in Greece became serious, and concern about the fiscal conditions and growth prospects in Europe heightened. On May 9 and 10, 2010, the Fed...

During the Global Financial Crisis of 2007–2009 (GFC), European financial institutions faced increased difficulty financing their US dollar–denominated assets as banks, money market funds, and other financial institutions pulled back funding. On December 12, 2007, the Federal Reserve...

In 1982, Mexico faced a balance of payments crisis, as rising interest rates and falling oil revenues made it increasingly difficult for the government to meet interest payments on its accumulated foreign debt. This case describes three currency swap facilities that the US government used to...

In 2014, Argentina’s economy faced multiple crises: recession, currency devaluation, default, and inflation. In July 2014, the People’s Bank of China (PBOC) and the Central Bank of Argentina (BCRA) entered into a bilateral currency swap agreement with a three-year term for 70 billion...

In 1994 and 1995, Mexico faced a series of economic and financial disruptions that led it to repeatedly seek financial assistance from the United States and international financial organizations. This case study describes three episodes during which the US government used currency swap...

The September 11, 2001, attacks on New York City damaged much of the infrastructure that powered US bank payments systems and the government securities market. The Federal Reserve responded quickly with several measures to inject liquidity and promote confidence in the domestic financial system....

During the early days of the Global Financial Crisis in 2007, the European Central Bank (ECB) set up a swap agreement with Sveriges Riksbank to provide euro liquidity in the case of adverse developments and to support market functioning. Sweden’s central bank could borrow a maximum of EUR 10...