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Interest Rate Future Quality Options and Negative Interest Rates

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dc.affiliation.institutoUC3M. Instituto para el Desarrollo de Empresas y Mercados (INDEM)es
dc.contributor.authorBalbás, Alejandro
dc.contributor.authorLaborda Herrero, Ricardo
dc.contributor.editorUniversidad Carlos III. Instituto para el Desarrollo Empresariales
dc.contributor.otheres
dc.date.accessioned2017-07-11T12:39:56Z
dc.date.available2017-07-11T12:39:56Z
dc.date.issued2017-07-10
dc.description.abstractThis paper verifies the existence of diversification gains from considering the "quality option asset strategy", which adds the portfolio replicating the interest rate future quality option, as proposed by Balbás and Reichardt (2010), and a portfolio comprised of stock and bonds. The empirical results show that the gains are statistically and economically significant, especially in the negative one-month Euribor rate period. The out-of-sample optimal tangency portfolio, which includes "quality option replicas", delivers an increase in the Sharpe ratio of around 40%, as well as a positive returnHloss oIseJng the costs of higher turnover. The main source of the diversiKcaLon gains emanates from the very low correlation between quality options and stocks. Furthermore, the (at least theoretical) existence of sequential arbitrage under negative rates magnifies the low correlation effect.en
dc.description.sponsorshipFinancial support from Gobierno de Aragón and FONDO EUROPEO DE DESARROLLO REGIONAL (CREVALOR) is gratefully acknowledged.en
dc.format.mimetypeapplication/pdf
dc.identifier.issn1989-8843
dc.identifier.urihttps://hdl.handle.net/10016/24859
dc.identifier.uxxiDT/0000001575
dc.language.isoeng
dc.relation.ispartofseriesWorking paper Business Economic Seriesen
dc.relation.ispartofseries17-03
dc.rightsAtribución-NoComercial-SinDerivadas 3.0 España
dc.rights.accessRightsopen access
dc.rights.urihttp://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.otherInterest rate future quality optionen
dc.subject.otherAsset Allocationen
dc.subject.otherMean-variance frontieren
dc.subject.otherNegative interest ratesen
dc.titleInterest Rate Future Quality Options and Negative Interest Ratesen
dc.typeworking paper*
dc.type.hasVersionAO*
dspace.entity.typePublication
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