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Examining non-parallel interest rate risk premia with a focus on South African markets
Thesis (PhD (Actuarial Science))--University of Pretoria, 2025.
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University of Pretoria
2025
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| _version_ | 1867613530817036288 |
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| access_status_str | Open Access |
| author2 | Mare, Eben |
| author_browse | Mare, Eben |
| author_facet | Mare, Eben |
| collection | Thesis |
| dc_rights_str_mv | © 2023 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria. |
| description | Thesis (PhD (Actuarial Science))--University of Pretoria, 2025. |
| format | Thesis |
| id | oai:repository.up.ac.za:2263/101860 |
| institution | University of Pretoria (South Africa) |
| language | English |
| last_indexed | 2026-06-10T12:37:37.270Z |
| license_str | Other — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UPSpace — University of Pretoria Institutional Repository |
| publishDate | 2025 |
| publishDateRange | 2025 |
| publishDateSort | 2025 |
| publisher | University of Pretoria |
| publisherStr | University of Pretoria |
| record_format | dspace |
| source_str | UPSpace — University of Pretoria Institutional Repository |
| spelling | oai:repository.up.ac.za:2263/101860 Examining non-parallel interest rate risk premia with a focus on South African markets Mare, Eben sanshimmy@yahoo.com Hariparsad, Sanveer Swap butterfly strategies Fixed income Risk premia Factor rank Level Slope Curvature Parallel and non-parallel shifts Curve scenarios Monetary and fiscal policy Thesis (PhD (Actuarial Science))--University of Pretoria, 2025. In this thesis we analysed sovereign yield curves for emerging and developed markets to identify the proportion of parallel and non-parallel shifts over time. We found that non-parallel shifts were more prevalent in emerging markets due to relatively higher political and economic risks. Key drivers included systemic risk events like wars, debt distress, and pandemics. Geopolitical risks were seen to increase in frequency in the modern era and developing a strategy to exploit non-parallel risk premia is an attractive proposition. We determined which policy regimes are appropriate to extract non-parallel risk premia. Our research suggests that countries with opposing monetary and fiscal policies possess greater non-parallel return opportunities whilst countries with complementing policies require tactical non-parallel strategies to optimise returns. We identified the South African (SA) swap and bond interest rate markets as suitable candidate for maximising non-parallel risk premia via a long butterfly strategy (which is immune to parallel curve shifts but exposed to non-parallel curve shifts). Various butterfly weighting methodologies were analysed with a cash and duration neutral methodology being the preferred option due to its conservatism and practicality. Ten swap and bond butterfly risk factors were defined using monthly SA data from 2001-2024. We back-tested and analysed these factors during interest rate cycles, curve scenarios and risk-off periods. Most of the top ranked swap and bond butterfly factors displayed strong and persistent outperformance over their corresponding bottom ranked factors, resulting in improved risk-adjusted and absolute returns especially during positive and steep twists, and bull and bear flattening curve scenarios. The All-Factor Rank which combined all the factors demonstrated improved diversification by balancing upside and downside risks. By demonstrating this outperformance our results contradict the strong efficient market hypothesis of not being able to consistently outperform the market on a risk-adjusted basis. Trade costs were an important factor that required pragmatic management, we compared monthly and quarterly rebalancing frequencies which resulted in monthly rebalancing producing greater gross returns but due to high trade costs, less frequent rebalancing as in the quarterly frequency reduced trade costs and improved net returns. Trade costs can be significant so having a pragmatic rebalancing strategy with efficient market makers that limit trade costs to one basis point of spread duration make these butterfly risk factors an effective and successful portable alpha strategy. Insurance and Actuarial Science PhD (Actuarial Science) Unrestricted Faculty of Natural and Agricultural Sciences None 2025-04-03T07:27:05Z 2025-04-03T07:27:05Z 2025-10 2025-03 Thesis * S2025 http://hdl.handle.net/2263/101860 Disclaimer Letter en © 2023 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria. application/pdf University of Pretoria |
| spellingShingle | Swap butterfly strategies Fixed income Risk premia Factor rank Level Slope Curvature Parallel and non-parallel shifts Curve scenarios Monetary and fiscal policy Examining non-parallel interest rate risk premia with a focus on South African markets |
| title | Examining non-parallel interest rate risk premia with a focus on South African markets |
| title_full | Examining non-parallel interest rate risk premia with a focus on South African markets |
| title_fullStr | Examining non-parallel interest rate risk premia with a focus on South African markets |
| title_full_unstemmed | Examining non-parallel interest rate risk premia with a focus on South African markets |
| title_short | Examining non-parallel interest rate risk premia with a focus on South African markets |
| title_sort | examining non parallel interest rate risk premia with a focus on south african markets |
| topic | Swap butterfly strategies Fixed income Risk premia Factor rank Level Slope Curvature Parallel and non-parallel shifts Curve scenarios Monetary and fiscal policy |
| url | http://hdl.handle.net/2263/101860 |