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Effects of Interest Rate Hikes on Financial Markets & Vasicek Modeling
#Quantitative Finance
#Fixed Income
#Vasicek Model
#Macroeconomics
#Monetary Policy
#Stochastic Rates
Empirical macro-financial research analyzing the transmission mechanism of central bank monetary policy tightening cycles onto domestic equity and sovereign debt markets.
Research Scope & Methodological Framework
- Empirical RBI Policy Analysis: Curated and synthesized 20+ years of Reserve Bank of India (RBI) monetary policy decisions, identifying structural tightening regimes (repo rate hikes), liquidity absorption mechanisms (CRR/SLR adjustments), and their corresponding macroeconomic drivers (CPI inflation surges, currency depreciations, fiscal deficits).
- Yield Curve & Term Structure Modeling:
- Implemented the Vasicek one-factor short-rate model ((dr_t = a(b - r_t)dt + \sigma dW_t)) capturing mean-reverting interest rate dynamics.
- Calibrated model parameters ((a, b, \sigma)) via Maximum Likelihood Estimation (MLE) against historical interbank call money rates.
- Bond Price Sensitivity & Duration Analysis:
- Simulated theoretical sovereign zero-coupon and coupon-bearing bond yield curves under various policy rate trajectory paths.
- Evaluated effective duration and convexity shifts to assess market portfolio vulnerability during rate hike cycles.