Petroleum is now by far Timor-Leste’s largest source of income. If well harnessed, Timor-Leste’s petroleum wealth offers the potential for a more prosperous future. This Selected Issues paper provides an overview of how Timor-Leste’s Petroleum Fund functions. It considers...

Once upon a time there was a classical financial world in which all the Libors were equal. Standard textbooks taught that simple relations held, such that, for example, a 6 months Libor Deposit was replicable with a 3 months Libor Deposits plus a 3x6 months Forward Rate Agreement (FRA), and that...

We review the main changes in the interbank market after the financial crisis started in August 2007. In particular, we focus on the fixed income market and we analyse the most relevant empirical evidences regarding the divergence of the existing basis between interbank rates with different...

We introduced in this study a model of sovereign debt with an embedded Down-and-In Put (DIP) to capture the discontinuity in sovereign debt pricing. This study suggests that debt forgiveness is a more effective solution in debt crisis, as repayment bonus or award or capital market exclusion...

Recent studies find a positive correlation between default and loss given default rates of credit portfolios. In response, financial regulators require financial institutions to base their capital on the 'Downturn' loss rate given default which is also known as Downturn LGD. This article...

Long Term Fixed Income Market securities present a strong positive correlation in daily returns. By using a metrical approach and considering "modified" time series, I show how it is possible to show a more complex structure which depends strictly on the maturity date.

This paper uncovers an implicit assumption, and its implications, made in the process of maximizing yield (or minimizing costs) subject to the duration constraints. Using linear programming results, it is shown that this technique is sensible only if the yield of a bond is a linear function of...

We present a quantitative study of the evolution of markets and models during the recent crisis. In particular, we focus on the fixed income market and we analyze the most relevant empirical evidence regarding the divergence between Libor and OIS rates, the explosion of basis swaps spreads, and...

The question of whether foreign investments should be systematically hedged against currency risk has not been clearly answered to date. Numerous theoretical and empirical studies have provided contradictory conclusions. This paper examines to what extent foreign bonds and equities are exposed...

We investigate the added value of inflation-linked bonds in an investment portfolio. Recently, several studies questioned the added value of inflation-linked bonds based on empirical analyses on developed markets. We extend the cross-section of countries with a set of nine emerging markets and...