Managing Interest Rate Risk

2018 ◽  
pp. 157-171
Keyword(s):  
Monte Carlo Simulation ◽  
Monte Carlo ◽  
Interest Rate ◽  
Six Sigma ◽  
Net Present Value ◽  
Interest Rate Risk ◽  
Interest Rate Derivatives ◽  
Rate Risk ◽  
Simulation Results ◽  
The Interest Rate

This chapter discusses the method's application to interest rate risk. The method uses interest rate derivatives elaborating how to value the two-year inverse floater derivative in order to manage interest rate risk. The chapter presents a model for the interest rate risk associated with two-year Inverse Floater Derivative as follows: 1) Monte Carlo simulation is used to stochastically calculate the total Net Present Value (NPV) of the two-year Inverse Floater Derivative, the associated Variance, Standard Deviation and VAR; 2) Six Sigma process capability metrics are also stochastically calculated against desired specified target limits for the total NPV, as well as relating VAR of two-year Inverse Floater Derivative; 3) Simulation results are presented and analysed.

scholarly journals The Performance of Alternative Interest Rate Risk Measures and Immunization Strategies under a Heath-Jarrow-Morton Framework

2005 ◽  
Vol 40 (3) ◽  
pp. 645-669 ◽  
Author(s):  
Senay Agca
Keyword(s):  
Monte Carlo Simulation ◽  
Monte Carlo ◽  
Interest Rate ◽  
Transaction Costs ◽  
Term Structure ◽  
Risk Measures ◽  
Interest Rate Risk ◽  
Holding Period ◽  
Rate Risk ◽  
Immunization Strategies

AbstractUsing a Monte Carlo simulation, this study addresses the question of how traditional risk measures and immunization strategies perform when the term structure evolves in a Heath-Jarrow-Morton (1992) manner. The results suggest that, for immunization purposes, immunization strategies and portfolio formation strategies are more important than interest rate risk measures. The performance of immunization strategies depends more on the transaction costs and the holding period than on the risk measures. Moreover, the immunization performance of bullet and barbell portfolios is not very sensitive to interest rate risk measures.

scholarly journals Total Return Swap Valuation with Counterparty Risk and Interest Rate Risk

2014 ◽  
Vol 2014 ◽  
pp. 1-12 ◽  
Author(s):  
Anjiao Wang ◽  
Zhongxing Ye
Keyword(s):  
Interest Rate ◽  
Closed Form ◽  
Interest Rate Risk ◽  
Counterparty Risk ◽  
Rate Model ◽  
Change Of Measure ◽  
Market Interest Rate ◽  
Rate Risk ◽  
Interest Rate Model ◽  
The Interest Rate

We study the pricing of total return swap (TRS) under the contagion models with counterparty risk and the interest rate risk. We assume that interest rate follows Heath-Jarrow-Morton (HJM) forward interest rate model and obtain the Libor market interest rate. The cases where default is related to the interest rate and independent of interest rate are considered. Using the methods of change of measure and the “total hazard construction,” the joint default probabilities are obtained. Furthermore, we obtain the closed-form formulas of TRS under different contagion models, respectively.

scholarly journals Quantifying the Interest Rate Risk of Banks: Assumptions Do Matter

2009 ◽  
Vol 15 (5) ◽  
pp. 1001-1018 ◽  
Author(s):  
Oliver Entrop ◽  
Marco Wilkens ◽  
Alexander Zeisler
Keyword(s):  
Interest Rate ◽  
Interest Rate Risk ◽  
Rate Risk ◽  
The Interest Rate
Sign in / Sign up

Export Citation Format

Share Document