This paper provides an accessible description and several examples of how to use Monte-Carlo simulation to value interest rate derivatives when the short rate follows an arbitrary time series process. We compare the values of various interest rate derivatives using closed-form solutions (when...

The present paper investigates the characteristics of short-term interest rates in several countries. We examine the importance of nonlinearities in the mean reversion and volatility of short-term interest rates. We examine various models that allow the conditional mean (drift) and conditional...

We apply the trading model of Fleming "et al" (1998). to a number of currency markets. The model posits that two markets can have common volatility structures as a result of receiving common information and from cross-hedging activity where a position in one currency is used to hedge risk in a...

This paper explores whether volatility linkages exist at the intra-daily frequency in the foreign exchange market, and whether market trading hours affect volatility transmission. To answer these questions, we apply the Fleming, Kirby and Ostdiek model (1998) to 21 currency pairs using hourly...

We use a general Markov switching model to examine the relationships between returns over three different asset classes: financial assets (US stocks and Treasury bonds), commodities (oil and gold) and real estate assets (US Case-Shiller index). We confirm the existence of two distinct regimes: a...

This paper attempts to uncover the determinants of the dealer bid-ask spread in the foreign exchange market. Prior research has examined the Huang–Masulis model wherein the spread is modelled as a function of dealer competition and volatility. We first extend this model to a much larger...

We have previously documented an inconsistency between the dividend yield implied by the Officer (1994) model with standard Australian regulatory parameters and actual dividend yields of Australian companies. We have shown that, within the Officer framework, this inconsistency can be resolved by...

We study the impact credit rating revisions have on stock returns of Australian firms rated by Standard & Poor's and Moody's. Our evidence is consistent with that documented in the USA showing that only downgrades contain price-relevant information. The reaction is most significant when the...

In a dividend imputation tax system, equity investors have three potential sources of return: dividends, capital gains and franking (tax) credits. However, the standard procedures for estimating the market risk premium (MRP) for use in the capital asset pricing model, ignore the value of...