scholarly journals Risk Management for Bonds with Embedded Options

Mathematics ◽  
2020 ◽  
Vol 8 (5) ◽  
pp. 790
Author(s):  
Antonio Díaz ◽  
Marta Tolentino
Keyword(s):  
Risk Management ◽  
Interest Rate ◽  
Interest Rates ◽  
Interest Rate Risk ◽  
Interest Rate Models ◽  
Management Measures ◽  
Interest Rate Risk Management ◽  
Embedded Options ◽  
The Interest Rate ◽  
Interest Rate Change

This paper examines the behavior of the interest rate risk management measures for bonds with embedded options and studies factors it depends on. The contingent option exercise implies that both the pricing and the risk management of bonds requires modelling future interest rates. We use the Ho and Lee (HL) and Black, Derman, and Toy (BDT) consistent interest rate models. In addition, specific interest rate measures that consider the contingent cash-flow structure of these coupon-bearing bonds must be computed. In our empirical analysis, we obtained evidence that effective duration and effective convexity depend primarily on the level of the forward interest rate and volatility. In addition, the higher the interest rate change and the lower the volatility, the greater the differences in pricing of these bonds when using the HL or BDT models.

Research on the Interest Rate Risk Management of Commercial Bank Based on F-W Duration Convexity Model

2014 ◽  
Vol 644-650 ◽  
pp. 5825-5827
Author(s):  
Feng Liu ◽  
Ping Zou
Keyword(s):  
Risk Management ◽  
Interest Rate ◽  
Interest Rates ◽  
Commercial Banks ◽  
Interest Rate Risk ◽  
Rate Risk ◽  
Interest Rate Risk Management ◽  
The Interest Rate ◽  
Marketization Reform ◽  
Management Capabilities

With the pace of interest rate marketization reform accelerates, interest rate risk faced by commercial banks increasingly prominent, so a higher demand for its interest rate risk management capabilities is required. This article describes the type of interest rate risk, then use F-W Duration Convexity model to make an empirical analysis in five large commercial banks. The results show: the five large bank duration and convexity gap are all positive, when interest rates rise, the five bank NV will be reduced, interest rates decline, then increased. According to ΔNV/PA, ICBC CCB and ABC faced the biggest interest rate risk, BOC followed, BCM minimum.

scholarly journals Management of interest risk in a commercial bank under the conditions of the modern market

2018 ◽  
pp. 53-56
Author(s):  
N. V. Magzumova ◽  
V. V. Naydenova
Keyword(s):  
Risk Management ◽  
Interest Rate ◽  
Interest Rates ◽  
Commercial Bank ◽  
Commercial Banks ◽  
Interest Rate Risk ◽  
Global Changes ◽  
Political Situation ◽  
Rate Risk ◽  
Interest Rate Risk Management

In the economy of our country, under the influence of the wave of economic crisis, a situation has developed that has significantly affected the activities of commercial banks that are participants in the financial market. In recent years, there has been a consistently high amplitude of global changes in financial markets, due to the crisis and instability of the political situation in the country. All this affects the functioning of commercial banks, especially in the regulation of interest rates. The banking sector is constantly faced with all sorts of risks. Interest rate risk is rightly recognized as the most important bank risk. According to the Central Bank of theRussian Federation, interest rate risk is the risk of financial losses (losses) that arise as a result of an unfavorable change in interest rates on assets, liabilities and off-balance sheet instruments. Interest rate risk management in commercial banks has become complicated due to the current economic and political situation in our country, as well as the instability of market conditions. The development of practical recommendations aimed at improving the interest rate risk management system in a commercial bank is an urgent task for any commercial bank. 

scholarly journals The Relationship Between Large Banks Investment In Available-For-Sale Securities And The Interest Rate Risk Of Their Securities

2010 ◽  
Vol 26 (3) ◽  
Author(s):  
Shilo Lifschutz
Keyword(s):  
Risk Management ◽  
Interest Rate ◽  
Interest Rates ◽  
Financial Risk ◽  
Fair Value ◽  
Interest Rate Risk ◽  
Empirical Examination ◽  
Rate Risk ◽  
The Interest Rate ◽  
The Relationship

This study presents an empirical examination of the relationship between large banks’ investment in available-for-sale securities (AFS) and the interest rate risk of their securities. It concentrates on the years, 1997-2000, when interest rates were relatively stable and regulatory capital was not affected by the unrealized holding gains and losses on AFS securities under Statement of Financial Accounting Standards No. 115. The two main findings of the study, having controlled for the interest risk position of the bank (exclusive of securities effect) and other risk management and economic considerations, are: (1) AFS securities’ ratio (to securities or to total assets) is positively related to the interest rate risk of securities; (2)a change in the AFS securities ratio is positively related to the change in the interest rate risk of securities.  These findings may well prove to be significant to supervisors of banks considering they are in charge of monitoring the effect of fair value accounting regulations on the financial risk management in banks.

Sign in / Sign up

Export Citation Format

Share Document