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In mathematical finance, the Cox–Ingersoll–Ross (CIR) model describes the evolution of interest rates. It is a type of "one factor model" (short-rate model) as it describes interest rate movements as driven by only one source of market risk. The model can be used in the valuation of interest rate derivatives.
Interest rate parity is a no-arbitrage condition representing an equilibrium state under which investors compare interest rates available on bank deposits in two countries. [1] The fact that this condition does not always hold allows for potential opportunities to earn riskless profits from covered interest arbitrage .
For example, AQR's risk parity fund declined 18% to 19% in 2008 compared with the 22% decline in the Vanguard Balanced Index fund. [42] According to a 2013 Wall Street Journal report the risk parity type of fund offered by hedge funds has "soared in popularity" and "consistently outperformed traditional strategies since the financial crisis". [43]
Financial economics studies how rational investors would apply decision theory to investment management.The subject is thus built on the foundations of microeconomics and derives several key results for the application of decision making under uncertainty to the financial markets.
Exchange-rate pass-through (ERPT) is a measure of how responsive international prices are to changes in exchange rates.. Formally, exchange-rate pass-through is the elasticity of local-currency import prices with respect to the local-currency price of foreign currency.
The forward exchange rate is determined by a parity relationship among the spot exchange rate and differences in interest rates between two countries, which reflects an economic equilibrium in the foreign exchange market under which arbitrage opportunities are eliminated. When in equilibrium, and when interest rates vary across two countries ...
The Journal of Financial Economics is a peer-reviewed academic journal published by Elsevier, covering the field of finance. It is considered to be one of the premier finance journals. [1] [2] According to the Journal Citation Reports, the journal has a 2020 impact factor of 6.988. [3]
Black, Fischer (1976). The pricing of commodity contracts, Journal of Financial Economics, 3, 167-179. Garman, Mark B. and Steven W. Kohlhagen (1983). Foreign currency option values, Journal of International Money and Finance, 2, 231-237.