Thomas Ho Company, LTD

05/06/2020

How to Simulate Interest Rate Risk Beyond the COVID-19 Crisis!

https://youtu.be/1FggLBYHRm0

04/17/2020

Dear Clients and Partners,     With the unprecedented events going on in the world, it’s time to activate your contingency plan. Watch the video to learn how the THC CFP report can help: - minimize the disruption of operations; - provide flexibility; - respond quickly to unplanned events.

04/13/2020

THC Bridge Report - https://mailchi.mp/a48423be5c28/thc-bridge-report-7942620

04/13/2020

Introducing the THC Bridge Report

04/07/2020

COVID 19 Impact -
What can we learn from the interest rate model? Rethink fixed income valuation in today’s rate environment.

https://mailchi.mp/thomasho/virus-1318215

04/03/2020

On March 19, 2020, Treasury discount bill rates fell to 20 basis points. As rates continue to fall, a possible negative rate regime can no longer be ignored. Bankers should seek answers to the following crucial questions:

03/27/2020

To provide support while the banking industry faces critical issues caused by pandemic , we offer a FREE quantitative assessment of the contingency funding plan and risk capacity! Check the video for more info!

03/25/2020

Q1 Notes and Updates

Profitability and risk are inseparable. Ask us how to leverage financial models to measure, monitor, and manage your institution in the midst of economic volatility.

03/06/2020

The coronavirus impact on the Rate Market and the Market Implied Interest Rate Forecast

We all know the coronavirus has disrupted the interest rate markets. But do we know what the market expects going forward? How can we price a floating rate note or adjustable-rate mortgage when we do not know how rates (and hence interest payments) will evolve, even becoming negative if implied by the market pricing?

Of course, today economists have many forecasts. One forecast, arguably more reliable and certainly more objective, is implying projected rates from the swaption derivative markets. THC MIRF infers the estimates, as explained in my Wednesday post, from the swaption prices. Let the market tell us what the market is thinking.

The first chart shows that the forward rates fell on 2/27. As you have likely heard, some economists suggest that the inverted yield curve is an indication of a coming recession. But I have estimated the interest rate distribution taking the mean of the distribution (MIRF) and I found that the results tell a different story. Rates were to go back up, as investors are bidding up the out-of-the-money swaptions to bet the interest rates to go up. The 2nd chart shows the THC estimated rate distribution. The interest rates are so low that market-implied rates have to be significantly negative. But the interest rate volatility increase, and therefore, the interest rate probability distribution is skewed (not symmetric). As a result, the market is expecting rates to go back up in a risk-neutral interpretation.

https://buff.ly/3cxYKyN

03/03/2020

Interest rate forecasting is central to asset-liability management, investment, budget, and many other banking decisions. Our goal is to provide our clients with the tools necessary to support their most pressing decisions. As a result, we introduced Market Interest Rate Forecast (MIRF), a forecast model that determines the probability distributions of interest rates inferred from a portfolio of swaption prices. This new approach provides interest rate forecasts objectively, efficiently, and systematically. The model can identify the skewness of the probability distributions, depending on the market’s view on the yield curve movements. For example, in 8/2019, rates fell significantly. MIRF forecasted the rates would rebound, and they did.
Today we would like to introduce our MIRF application as an extension of the THC Yield Curves analytics application.


The graph shows the difference between MIRF and Forward rates at a horizon date. The chart also presents a comparison with the Par and Spot Curves.

MIRF presents a normative value. If the market is efficient, then the expected values would reflect the market consensus of future rates. If the expected rates are inappropriate, then the model suggests arbitrage opportunities may be available. MIRF is consistent with capital market pricing and provides valuable rate benchmarking indices and risk management which apply to:
• ALCO
• Budgeting
• Total return analysis
• Stress Tests
• Loan Pricing
• Balance Sheet duration exposure

Do not forget to subscribe to our weekly publications and visit https://buff.ly/2PERuam (link) to read our previous publications. We will be delighted to answer any of your questions and demo our asset-liability management platform.

02/18/2020

Banking Paradigm Shift

Today, community financial institutions are at the cross-currents of change: low-interest rates, rising regulatory requirements, changing customer needs due to demographics, and technological progress. In short, banking is confronting a rapid paradigm shift. Previously we discussed in detail the....

02/17/2020