Studies On Dynamic And Integrated Interest Rate Risk Measurement And Management In Commercial Banks

With the speeding process of the interest rate marketization, commercial banks face increasingly serious interest rate risk. How to measure and manage it draws most attention in finance industry because commercial banks are an important part in our finance system and an important chain in transmission mechanisms of monetary policy for central bank.Firstly, this paper puts forward that there are three methods named as income effect, market value effect and dynamic effect, which can explain the forming mechanism of interest rate risk in commercial banks. Therefore, these effects must be considered roundly in interest rate risk measurement. Secondly, bank operations will be re-partitioned on the basis of interest rate sensitivity and all interest rate risk of sensitive operation will be identified on dynamic, precise and rational rule. Studies show that the form of interest rate risk of different interest rate sensitive bank operation is different. Interest rate risk in commercial banks can be divided into single interest rate risk and integrated interest rate risk on operation. Accordingly, interest rate risk measurements also include two layers as single interest rate risk measurement and integrated interest rate risk measurement. This paper measures interest rate risk in commercial banks in accordance to the path, which single risk measurement will be doing before integrated risk measurement. Thus, this thesis will first measure by all kinds of adjusted duration interest rate risk in some special bank operations such as Callable Bonds with embedded options, overdue loans with credit risk and so on. Thirdly, the thesis analyzes dynamic measurement interest rate risk in commercial banks with point of interest rate dynamic behavior such as yield curve non-parallel shifts, term structure of interest rate and so on, and suggest that, these interest rate dynamic behavior must be considered to design stochastic duration models based on it, if have to measure the effect of interest rate changes to net future value and expected return of bank. Fourthly, build up a framework for dynamic and integrated measurement on interest rate risk in commercial banks, and calculate bank integrated risk on example of China Minsheng Banking Ltd Corp. Then, analyze efficiency of dynamic and integrated modeling. Positive studies show that all kinds of adjusted duration(such as option-adjusted duration, breaking-promise-adjusted duration, stochastic duration considered yield curve non-parallel shifts, stochastic duration based on term structure of interest rate and so on) promote measuring precision in interest rate risk to a certain extent. Lastly, put forward dynamic stochastic duration immunization modeling interest rate risk in commercial banks. The thesis will analyze a example of China Minsheng Banking Ltd Corp. and show that compared to traditional duration immunization strategy, efficiency of dynamic stochastic duration immunization strategy is increased largely.In the paper, research ways adopted include macro analysis combined with micro analysis, theoretical analysis combined with empirical analysis and so on. Especially, stochastic process, differential equation, linear programming and computer techniques connecting with mathematical statistics are highly emphasized to create a practical dynamic and integrated interest rate risk measuring model in commercial banks. Concrete quantitative analysis methods include:â‘ Dynamic stochastic simulating method in creating model;â‘¡Maximum likelihood Estimation(MLE) method and General Matrix Method(GMM) in parameter estimating;â‘¢Historical data simulation method in model verifying.