Financial Markets Update Q3 2009
Document ID: 2009-1565
Published on: 5th October 2009
Author: Harry Hibbert
The trend towards stability in global financial markets has continued over the third quarter of 2009. Stock markets have risen whilst market implied volatility has continued to fall and corporate credit spreads have come down to more historically reconcilable levels. Inflation expectations appear to have been revised upwards as recovery looks more likely. However, recent unemployment figures from the United States remind us that, whilst the economic outlook is improving, it is not yet certain. This financial market update summarises developments in financial markets over the quarter ahead of the end September calibration.
This financial markets update also includes a special issue on the new Time-Varying Term Premium model which is available in the ESG from version 6.2.3. We explain that whether you have a view that term premia are time-varying or constant over time, using a log-normal interest rate model will have an impact on your long term real-world interest rate projection. The two different model calibrations will provide different explanations for the large changes in nominal forward rate curves over the past year.
