Study of the dynamics of the interest rate swap using machine learning methods

Authors

DOI:

https://doi.org/10.17721/1812-5409.2022/3.4

Keywords:

interest rate swap, machine learning, Ukrainian overnight interbank rate index, fair value, zero coupon yield curve

Abstract

For the European financial system, the interest rate swap is a well-known mechanism to reduce the potential effects of these risks, but it is new to the Ukrainian interbank market. In the second half of 2020, the National Bank of Ukraine and commercial banks held their first interest rate swap auctions. According to this provision, one party offers the other a floating interest rate while the other offers a fixed interest rate based on a conditional amount. Based on the Ukrainian overnight interbank rate index, the latter is computed (UONIA). Future cash flows are discounted at rates determined by the zero coupon yield curve created for hryvnia government bonds. The parties agree on how to calculate the difference in interest payments within the predetermined period of time. The analysis of the fair value of this financial instrument at future points in time is the main concern of mathematical modeling of interest rate swap transactions. Predicting future changes in fair value is particularly crucial when the zero coupon yield curve’s coefficients vary and when there are specific trends in the index of overnight interbank rates. The sensitivity of the specified factors to the interest rate swap’s dynamics was investigated in the study, and a forecast of the instrument’s future dynamics based on the change in important macroeconomic indicators was developed.

Pages of the article in the issue: 37 - 41

Language of the article: Ukrainian

References

Resolution of the NBU Board dated 05/28/2020 No. 67 "On approval of the Regulation on conducting interest rate swap operations by the National Bank of Ukraine on the interbank market"(as amended by NBU Board Resolution No. 76 of 06/18/2020): https://bank.gov.ua/ua/ legislation/Regulation_28052020_67

Schedule of interest rate swap auctions: https://bank.gov.ua/ua/markets/ money-market/irs

Regulations on the calculation and publication of the Ukrainian overnight interbank rate index (UONIA): https://zakon.rada.gov.ua/laws/show/vr405500-20#Text

Money market: UONIA dynamics: https://bank.gov.ua/ua/markets/uonia-chart? startDate=31.12.2020&endDate=16.05.2022

On the approval of the Amendments to the Procedure for estimating the fair value of derivative financial instruments, transactions with which the National Bank of Ukraine carries out: https://bank.gov.ua/ua/ legislation/Decision_19062020_415-rsh

Coefficients of the zero-coupon yield curve constructed for hryvnia OVDP: https:// bank.gov.ua/ua/markets/ovdp/fair-value

Svensson model: https://zakononline.com. ua/documents/show/366367 652927

Rate index for deposits of individuals: https://index.minfin.com.ua/ua/banks/ deposit/index/

Deposit Interest Rate in Ukraine: https://tradingeconomics.com/ukraine/ deposit-interest-rate

Ukraine Interest Rate: https://tradingeconomics.com/ukraine/interest-rate

Code: https://drive.google.com/file/d/1Ilr2CcHEW7hri4-Y-ORk2qDbCuxZJjFU/view?usp=sharing

Excel file interest rate swap fair value calculator: https://docs. google.com/spreadsheets/d/1IXd-Le-ihId9SGrNeVCX18W7eL1b444Y/edit?usp=sharing&ouid=104784915637989918366&rtpof=true&sd=true

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Published

2022-12-09

How to Cite

Zubchenko, V. P., & Aleksandrova, P. V. (2022). Study of the dynamics of the interest rate swap using machine learning methods. Bulletin of Taras Shevchenko National University of Kyiv. Physical and Mathematical Sciences, (3), 37–41. https://doi.org/10.17721/1812-5409.2022/3.4

Issue

No. 3 (2022)

Section

Algebra, Geometry and Probability Theory

License

Copyright (c) 2022 V. P. Zubchenko, P. V. Aleksandrova

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