Full Text Available
Note: Clicking the button above will open the full text document at the original institutional repository in a new window.
South African Inflation Modelling Under the HJM Framework
Inflation modelling is typically done following an econometric approach, however this results in models being constructed that are not consistent with the observable bond market and as such they cannot be used in hedging market instruments or in pricing inflation-linked derivatives. Jarrow and Yildi...
Saved in:
| Main Author: | |
|---|---|
| Other Authors: | |
| Format: | Thesis |
| Language: | English |
| Published: |
Department of Finance and Tax
2023
|
| Subjects: | |
| Tags: |
No Tags, Be the first to tag this record!
|
| _version_ | 1867614423443570688 |
|---|---|
| access_status_str | Open Access |
| author | Rizzo, Massimo |
| author2 | Mahomed, Obeid |
| author_browse | Mahomed, Obeid Rizzo, Massimo |
| author_facet | Mahomed, Obeid Rizzo, Massimo |
| author_sort | Rizzo, Massimo |
| collection | Thesis |
| description | Inflation modelling is typically done following an econometric approach, however this results in models being constructed that are not consistent with the observable bond market and as such they cannot be used in hedging market instruments or in pricing inflation-linked derivatives. Jarrow and Yildirim (2003) were one of the first to propose a framework under which nominal and real forward rates and an inflation index could be jointly modelled in a consistent manner, based on the Heath-Jarrow-Morton (HJM) framework as first developed by Heath et al. (1992). They showed that under this framework it is possible to recover observed nominal and inflation-linked bond prices, hedge these instruments, and price related inflation-linked derivatives. A shortfall of this framework however, as critiqued by Mercurio (2005) and Belgrade et al. (2004), is that it depends entirely on non observable parameters. As such, estimating the parameters of a model constructed under this framework is non-trivial. This dissertation applies the approach detailed by Jarrow and Yildirim (2003) to construct a model that fits the South African context, and makes use of the Kalman filter, as originally documented by Kalman (1960), to overcome the issues that arise in parameter estimation. Using the model constructed, forecasts of future inflation in South Africa are produced. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/37775 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:51:48.588Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2023 |
| publishDateRange | 2023 |
| publishDateSort | 2023 |
| publisher | Department of Finance and Tax |
| publisherStr | Department of Finance and Tax |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/37775 South African Inflation Modelling Under the HJM Framework Rizzo, Massimo Mahomed, Obeid Mathematical Finance Inflation modelling is typically done following an econometric approach, however this results in models being constructed that are not consistent with the observable bond market and as such they cannot be used in hedging market instruments or in pricing inflation-linked derivatives. Jarrow and Yildirim (2003) were one of the first to propose a framework under which nominal and real forward rates and an inflation index could be jointly modelled in a consistent manner, based on the Heath-Jarrow-Morton (HJM) framework as first developed by Heath et al. (1992). They showed that under this framework it is possible to recover observed nominal and inflation-linked bond prices, hedge these instruments, and price related inflation-linked derivatives. A shortfall of this framework however, as critiqued by Mercurio (2005) and Belgrade et al. (2004), is that it depends entirely on non observable parameters. As such, estimating the parameters of a model constructed under this framework is non-trivial. This dissertation applies the approach detailed by Jarrow and Yildirim (2003) to construct a model that fits the South African context, and makes use of the Kalman filter, as originally documented by Kalman (1960), to overcome the issues that arise in parameter estimation. Using the model constructed, forecasts of future inflation in South Africa are produced. 2023-04-20T10:33:16Z 2023-04-20T10:33:16Z 2022 2023-04-20T08:33:02Z Master Thesis Masters MPhil http://hdl.handle.net/11427/37775 eng application/pdf Department of Finance and Tax Faculty of Commerce |
| spellingShingle | Mathematical Finance Rizzo, Massimo South African Inflation Modelling Under the HJM Framework |
| thesis_degree_str | Master's |
| title | South African Inflation Modelling Under the HJM Framework |
| title_full | South African Inflation Modelling Under the HJM Framework |
| title_fullStr | South African Inflation Modelling Under the HJM Framework |
| title_full_unstemmed | South African Inflation Modelling Under the HJM Framework |
| title_short | South African Inflation Modelling Under the HJM Framework |
| title_sort | south african inflation modelling under the hjm framework |
| topic | Mathematical Finance |
| url | http://hdl.handle.net/11427/37775 |
| work_keys_str_mv | AT rizzomassimo southafricaninflationmodellingunderthehjmframework |