Interest Rate Derivatives in the South African Market Based on the Prime Rate

G West

Studies in Economics and Econometrics, 2008, vol. 32, issue 1, 75-87

Abstract: Derivatives linked to the prime rate of interest have become quite relevant with the introduction to the exchange traded market of preference shares with payoffs linked to the prime rate. Furthermore, there is an interest in the retail market for retail banks to provide protection to their clients on movements in the prime rate. Here we discuss a possible approach to building models of forward prime and the pricing and hedging of such derivatives. The basic approach is to analyse the statistical cointegration relationship between prime and JIBAR rates.

Date: 2008
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DOI: 10.1080/10800379.2008.12106444

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