Business Commons^™

Effectively Hedging The Interest Rate Risk Of Wide Floating Rate Coupon Spreads, Thomas Schröder, Kwamie Dunbar

WCBT Working Papers

Bond issuers frequently immunize/hedge their interest rate exposure by means of interest rate swaps (IRS). The receiving leg matches all bond cash-flows, while the pay leg requires floating rate coupon payments of form LIBOR + a spread. The goal of hedging against interest rate risk is only achieved in full if the present value of this spread is zero. Using market data we show that under a traditional IRS hedging strategy an investor could still experience significant cash flow losses given a 1% shift in the underlying benchmark yield curve.

We consider the instantaneous interest-rate risk of a bond portfolio …

Single And Multiple Interruptions Increase Task Performance Time, But Don't Affect Stress, Pressure Or Flow, Maureen A. Conard, Robert F. Marsh

WCBT Working Papers

We compared task performance time and psychological reactions for uninterrupted, single interrupted, and multiple interrupted conditions. For 110 undergraduates, those who were uninterrupted while completing a jigsaw puzzle were 26% faster than the single interruption, and 30% faster than the multiple interruption conditions. Single and multiple interruption conditions were not significantly different. Participants in the multiple interruption condition felt more stress than those in the uninterrupted condition, although stress levels were low in both conditions. Perceptions of time pressure and flow were not different across conditions. Performance on the interrupting task (a word search puzzle) was not significantly different across …

The Extreme Risk Problem For Monetary Policies Of The Euro-Candidates Countries, Hubert Gabrisch, Lucjan T. Orlowski

WCBT Working Papers

We argue that monetary policies in euro-candidate countries should also aim at mitigating excessive instability of the key target and instrument variables of monetary policy during turbulent market periods. Our empirical tests show a significant degree of leptokurtosis, thus prevalence of tail-risks, in the conditional volatility series of such variables in the euro-candidate countries. Their central banks will be well-advised to use both standard and unorthodox (discretionary) tools of monetary policy to mitigate such extreme risks while steering their economies out of the crisis and through the euroconvergence process. Such policies provide flexibility that is not embedded in the Taylor-type …