Abstract

To efficiently assess the performance of investing in stocks rather than in a bank account for the long run, stochastic interest rate modelling is advocated. We introduce a correlated stochastic interest rate model that addresses this problem. We derive analytic formulas for general spectral risk measures in our setting, and apply our results to Value at Risk, Expected Shortfall and GlueVaR. We characterize the short- and long-term behaviour of these risk measures. We fit our model to financial markets, perform an empirical study and evaluate risk numbers for realistic scenarios in the future. Our results reveal sizeable sensitivities on parameter estimation, but we may conclude that holding stocks for less than a few decades bears significant risk.

Details

Title
The riskiness of stock versus money market investment with stochastic rates
Author
Szabó, Dávid Zoltán 1   VIAFID ORCID Logo  ; Bihary, Zsolt 1 

 Corvinus University of Budapest, Department of Finance, Budapest, Hungary (GRID:grid.17127.32) (ISNI:0000 0000 9234 5858) 
Pages
393-415
Publication year
2023
Publication date
Jun 2023
Publisher
Springer Nature B.V.
ISSN
1435246X
e-ISSN
16139178
Source type
Scholarly Journal
Language of publication
English
ProQuest document ID
2789010739
Copyright
© The Author(s) 2022. This work is published under http://creativecommons.org/licenses/by/4.0/ (the “License”). Notwithstanding the ProQuest Terms and Conditions, you may use this content in accordance with the terms of the License.