The adjustment of the real interest rate to inflation

Groenewold, Nicolaas

doi:10.1080/758518235

Cited by 10 publications

(4 citation statements)

References 12 publications

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“…6Equation-by-equation OLS estimation of, for example, Equations 16 and 17 (interpreted as cointegrating relations) automatically ensures that the parameter estimates satisfy the adding-up restrictions in Equation 15 since the regressors are the same in each equation and the difference between the regressands (alternatively, the sum of i and -r) always equals one of the regressors (n) due to Equation 18. Levi and Makin (1979), Peek (1982), Wilcox (1983), Hoffman and Schlagenhauf (1985) and Groenewold (1989); the interpretation as reduced forms, however, requires ne to be exogenous, which is a dubious assumption (Summers, 1983). Studies using techniques designed to focus on long-run relations (e.g.…”

Section: An a L T E R N A T I V E F R A M E W O R Kmentioning

confidence: 97%

Cointegration analysis of the Fisher hypothesis: the role of the real rate and the Fisher identity

Owen

1993

Applied Financial Economics

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Section: An a L T E R N A T I V E F R A M E W O R Kmentioning

confidence: 97%

Cointegration analysis of the Fisher hypothesis: the role of the real rate and the Fisher identity

Owen

1993

Applied Financial Economics

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“…We use Fisher's equation model [22] to model the inflation rate. This model can estimate the actual bond return based on the real interest rate obtained from the relationship between the nominal interest and inflation rates [23,24]. Then, the risk of loss is represented by the catastrophic aggregate loss, modeled using a compound Poisson process (CPP).…”

Section: √ √mentioning

confidence: 99%

“…represents a probability measure corresponding to the distribution of L z,k , and E is often called the risk-neutral price measure. In more detail, the form 1+p z 1+q z in Equation ( 4) is Fisher's real interest rate equation [22,23].…”

Section: Regional Catastrophe Bond Pricing Modelmentioning

confidence: 99%

A Regional Catastrophe Bond Pricing Model and Its Application in Indonesia’s Provinces

Sukono,

Napitupulu,

Riaman

et al. 2023

Mathematics

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The national scale of catastrophic losses risk linked to state catastrophe bonds (SCB) is enormous. It can reduce investors’ interest in buying them because the capital required and the loss probability are also significant. To overcome this, the SCB can be made on a smaller regional scale, known as a regional catastrophe bond (RCB). Through RCBs, the catastrophic loss risk investors bear becomes smaller, which can increase investors’ interest in buying them. Unfortunately, RCB issuance faced a fundamental obstacle, where its complex pricing model needed further study. Therefore, this study aims to model it. The model uniquely involves the inflation rate modeled using the Fisher equation and the nonbinary scheme of coupon and redemption value payments modeled by a compound Poisson process. In addition, the model is applied to Indonesia’s catastrophe data, resulting in all provinces’ RCB price estimation and the effects of several variables on RCB price. This research can guide the RCB pricing process of the country’s regions. The estimated RCB prices can be used by Indonesia’s government if RCBs are to be issued one day. Finally, the effects of the inflation rate, catastrophe intensity, and geographical location on RCB prices can guide investors in selecting bond portfolios.

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“…This factor is crucial to involve so that investors get the expected real interest rate following market fluctuations. If the inflation rate is higher than the interest rate, then the real interest rate earned by investors is lower than expected and vice versa [23,24].…”

Section: Introductionmentioning

confidence: 99%

Modeling Multiple-Event Catastrophe Bond Prices Involving the Trigger Event Correlation, Interest, and Inflation Rates

et al. 2022

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The issuance of multiple-event catastrophe bonds (MECBs) has the potential to increase in the next few years. This is due to the increasing trend in the frequency of global catastrophes, which makes single-event catastrophe bonds (SECBs) less relevant. However, there are obstacles to issuing MECBs since the pricing framework is still little studied. Therefore, this study aims to develop such a new pricing framework. The model uniquely involves three new variables: the trigger event correlation, interest, and inflation rates. The trigger event correlation rate was accommodated by the involvement of the copula while the interest and inflation rates were simultaneously considered using an integrated autoregressive vector stochastic model. After the model was obtained, the model was simulated on storm catastrophe data in the United States. Finally, the effect of the three variables on MECB prices was also analyzed. The analysis results show that the three variables make MECB prices more fairly than other models. This research is expected to guide special purpose vehicles to set fairer MECB prices and can also be used as a reference for investors in choosing MECBs based on the rates of trigger event correlation and the real interest they can expect.

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The adjustment of the real interest rate to inflation

Cited by 10 publications

References 12 publications

Cointegration analysis of the Fisher hypothesis: the role of the real rate and the Fisher identity

Cointegration analysis of the Fisher hypothesis: the role of the real rate and the Fisher identity

A Regional Catastrophe Bond Pricing Model and Its Application in Indonesia’s Provinces

Modeling Multiple-Event Catastrophe Bond Prices Involving the Trigger Event Correlation, Interest, and Inflation Rates

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