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Bulletin of Monetary Economics and Banking

Document Type

Article

Abstract

A Measuring the risk associated with interest rates is important since it is beneficial in taking measures before negative effects can take place in an economy. We obtain a risk measure for interest rates by fitting the generalized Pareto distribution (GPD) to positive extreme day-to-day changes of the interest rate, using data from the Istanbul Stock Exchange (ISE) Second Hand Bond Market, namely Government Bond interest rate closing quotations, for the time period 2001 through 2009. Although the use of the GPD in the context of absolute interest rates is well ocumented in literature, our approach is different insofar and contributes to the literature as changes in interest rates constitute the target of our analysis, reflecting the idea that risk arises from abrupt changes in interest rate rather than in interest rate levels themselves. Our study clearly shows that the GPD, when applied to interest rate changes, provides a good tool for interest rate risk assessment, and permit a period-specific risk evaluation. Keyword: Interest rate risk; covered interest parity; Turkey; generalized Pareto distributionJEL Classification: G1; C1

First Page

183

Last Page

204

Creative Commons License

Creative Commons Attribution-NonCommercial 4.0 International License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Country

Türkiye

Affiliation

Istanbul Bilgi University

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