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Topics in Yield Curve Modeling
Kučera, Adam ; Kočenda, Evžen (advisor) ; Horváth, Roman (referee) ; Mandel, Martin (referee) ; Berka, Martin (referee)
The aim of the thesis is to examine the interaction of macroeconomic and fi- nancial factors through the lens of yield curve dynamics. The thesis consists of three essays that jointly demonstrate the complexity of information incorporated in the yield curve and the importance of attributing yield curve movements to those factors correctly. The first essay uses news-based approach to identify triggers of the U.S. Treasury yield curve movements and demonstrates shifts in the importance of various causes of the movements. The second essay further evaluates the transmission of fiscal policy shocks to the U.S. Treasury yield curve. The first and the second essay together contribute to the literature by showing that the factors beyond the U.S. economic conditions and monetary policy have been becoming an increasingly important cause of the U.S. yield curve movements. These factors include changes in portfolio allocation, cross-border flight to quality and changes in fiscal policy. The third essay proposes a novel method to apply the up-to-date yield curve models to a government bond yield curve in an economy with a relatively shallow government bond market, using the case of the Czech government bond yield curve. This enables decomposing the yield curve and interpreting its movements while accounting for...
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Selected financial optimization models
Bujnovský, Daniel ; Bednář, Josef (referee) ; Popela, Pavel (advisor)
This work is focused on models of optimal asset and liability management. The practical section illustrates various ways of modelling strategies depending on the problem formulation, chosen set of assets and the type of the used optimization technique. The main examples are portfolio immunization and the Yasuda-Kasai model together with the extended version of Markowitz model. The author provides across the work an overview of different financial risks and various tools for their measurement together with possible formulations of expected returns relevant to the studied models. The individual models are compared and often extended by other constraints in order to improve their practical applicability. From the point of view of the mathematical optimization several ways of input data generation are described for example by using the extended Brownian motion. All practical parts go hand in hand with illustrative pictures and codes. The necessary financial and mathematical theory is included as well.
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Bond yield curves construction and their use
HODINOVÁ, Anna
This bachelor thesis deals with the construction of bond yield curves and their use. It characterizes the different types of bonds, their pricing methods and yields. The crucial part of the bachelor thesis deals with the problems of yield curves, defining the types and shapes of yield curves and the theories explaining their shape. This knowledge is further applied to the construction of bond curves of the Czech Republic. Yield curves are constructed from yields to maturity interpolated with the Svensson function, from 2015 to 2022. Their shape is compared with the forecasts of the Czech National Bank and subsequently with macroeconomic indicators for the respective year. The compared results show that the shape and the difference in yields of short-term and long-term bonds can determine the direction of economic activity, but the amount of economic activity cannot be determined based on these values.
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Interest Rate Risk Analysis by Principal Component Method
Myšičková, Ivana ; Houfková, Lucia (advisor) ; Prášková, Zuzana (referee)
Presented study analyzes interest rate risk associated with the possession of given fixed coupon bond. In the first chapter, we define some of the basic concepts and provide description of available data. These are historical data on spot interest rates of zero-coupon bonds for various times to maturity which will be used for the construction of the yield curves. Based on these bond yield curves we evaluate the bond, thus obtaining a picture of the evolution of its price. Later on, we try to estimate its price tomorrow. We present two approaches how to deal with this problem. First approach is the normal interest rate risk analysis based on duration and convexity, second approach is the method of principal components which will be applied to the historical daily changes in yield curves. The method of principal components is introduced in detail.
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Modelling of yield curves
Šmejkal, Jan ; Hurt, Jan (advisor) ; Zichová, Jitka (referee)
In practice, yield curves, i.e. plots of relation between yields and times to maturity for a group of comparable securities, are an important tool for assets and liabilities pricing as well as for financial decision making. The theoretical risk-free yield curve represents the term structure of interest rates that are used e.g. in insurance industry for pricing the liabilities, for which reserves are created, or also as a benchmark for pricing other assets in the market. When constructing the yield curve, it is not possible to observe yields of a group of assets for all maturities. That is why we use various mathematical methods which enable us to construct the yield curve also for unobserved maturities. In this thesis, some of these methods are introduced. The Svensson's method is one of the most important and frequently used ones. We use this method to derive the coupon curve from Czech government bonds aiming to construct the risk-free zero coupon yield curve. Later on, we use different weights for particular bonds trying to improve pricing of all the bonds based on the derived curve. Then, we also look for the curve that minimizes the mean squared error of estimated (compared to observed) prices. Because problems with liquidity can appear especially for long maturities, we apply all of the procedures to a...
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Co-jumping of yield curve
Fišer, Pavel ; Baruník, Jozef (advisor) ; Vácha, Lukáš (referee)
The main focus of the thesis is on jumps and co-jumps and their influence on the term structure of the U.S. Treasury bond futures contracts. Using high frequency data I am able to quantify to which extent co-jumps affect the correlation between bond futures pairs with different maturities which is not common in the literature. In order to separate the price process into continuous and discontinuous components represented by jumps and to pre- cisely localize significant co-jumps a new wavelet-based estimator is used for the analyses. Furthermore, I am studying the co-jump behavior in response to scheduled macroeconomic news announcements. Empirical findings re- veal strong influence of co-jumps to the correlation structure of bond futures across all maturity pairs as well as a significant link between Federal Open Market Committee news announcements and higher probability of co-jump occurrence.
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The Predictive Power of The Yield Curve: Some Empirical Evidence
Jamriška, Jozef ; Hlaváček, Michal (advisor) ; Derviz, Alexis (referee)
Economists often use complex mathematical models to forecast the future path of the economy and the likelihood of recession. But more simple indicators such as interest rates, stock price indices, and monetary aggregates also contain some relevant information about future economic activity. In this thesis we revisit the usefulness of one such indicator, the yield curve or, more specifically, the spread between the interest rates on the ten-year Treasury note and the three-month Treasury bill. By using four different models we examine whether the yield spread has still some predicitve power for future real GDP growth in selected european countries. What is more, we are comparing the predictive power of the yield spread with different variables, both in- sample and out-of-sample. We decompose the yield spread into expectations effect and term premium effect in order to investigate which factor contributes more to predicting real GDP growth. Using modified definition of recession we conclude that that yield spread still contains some useful information for predicting future economic activity, although its predictive power deteriorates.
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Term structure of interest rates
Boháčková, Jana ; Hurt, Jan (advisor) ; Rusý, Tomáš (referee)
Bachelor thesis deals with interest rates and yield curves. Terms spot interest rate, forward interest rate and discount factor are established. Three models for describing yield curves are used, two parametric models: Nelson-Siegel model and Svensson model and one nonparametric model: kernel estimator. Function of a yield curve is decribed for all models and for parametric models and the parameters in parametric models are also described. Eventually, all models are used on real data. 1
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Longer-term Yield Decomposition: an analysis of the Czech Government Yield Curve
Kučera, Adam ; Dvořák, Michal ; Komárek, Luboš ; Komárková, Zlatuše
The term structure of yields is an important source of information on market expectations about future macroeconomic developments and investors’ risk perceptions and preferences. This paper presents the methodology used by the Czech National Bank to obtain such information. It describes the decomposition of the Czech government bond yield curve into its components. The evolution of those components is interpreted in relation to the macro-financial environment, as embodied by selected variables. The practical use of the decomposition in estimating and interpreting the responses of the Czech government bond yield curve to macroeconomic and financial shocks is presented using a vector autoregression model.
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Bond yield curves construction and their use
TRÁVNÍČKOVÁ, Eva
The bachelor thesis "Bond yield curves and their use" deals with the issue of yield curves. It defines bonds, their risks and yield. The main topic of the bachelor thesis is the theory of yield curve and their construction. Work with regard to the definition of yield curves, shape and theoretical approaches explaining its curvature. The findings are applied to the computational structure of several yield curves of the Czech Republic's government bonds at a certain time horizon and a comparison with the yield curves of selected states.
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