The Interest Rate Risk Management Of Commercial Bank's Personal Financial Product

Personal Financial Services of Commercial banks, refers to financial analysis, financial planning, investment advisers, asset management, and other professional services provided by commercial banks for individual customers. As China's financial market gradually opening up and its banking products getting more and more innovative, personal financial products by commercial banks, in particular the interest rate-financing products will become an important part of banking products.From the perspective of the banks to discuss the interest rate risk management of the interest rate-financing products can deepen the research of innovation on intermediary services of banks. Therefore, how to effectively assess the interest rate risk of personal financial products by commercial banks and how to guard against these risks is an inevitable issue and an important research topic that commercial banks in China should attach importance to. Based on experience of commercial banks of developed western countries on interest rate risk management, we should probe into preventive measures according to situation in China against rate risk in commercial banks'personal financial products to benefit the development of China's personal financial products business of commercial banks.From the perspective of commercial banks, this paper analyses the types of individual financial products by commercial banks and discusses the rate risk of personal financial products by commercial banks. It also compare the traditional and the modern methods to measure interest rate risk in search of the most appropriate method for commercial banks to measure the rate risk of personal financial products. Finally, according to the comparison between the two methods of interest rate risk management, this paper chooses a derivative financial tool to manage interest rate risk products in order to meet commercial banks'demand for interest rate risk management of personal financial products. This paper applies comparative analysis, classification analysis, theoretical analysis and case analysis to research the interest rate of personal financial products of Chinese commercial banks in the following sections:Section 1 briefs the object, purpose, and significance of the research, describes the analysis framework of the paper, concludes research results home and abroad on personal financial services and products, summarizes methods in academia home and abroad on recognizing, measuring and managing interest rate risk of commercial banks. It also concludes the research train of thoughts of this paper and indicates its innovative points as well as issues that demands further research.Section two reviews research papers of domestic scholars in recent years on risk management of personal financial services and products by commercial banks. Then it defines the personal financial products by commercial banks and classifies the current products into quasi-money-market funds types of products, structural deposits, fixed-income portfolio financing products and other types of financial products four types. Finally, this paper analyzes the major risks of personal financial products by commercial banks considering their features. These risks are classified into Issue risk, market risk, compliance risk, credit risk, liquidity risk, operational risk and other risks.Section three reviews the research papers of domestic and foreign scholars on interest rate risk identification of commercial banks. Then it takes specific examples about personal financial products by commercial banks to analyze the four types of interest rate risks of financial products: Repricing risk, Yield Curve risk, Basic risk and Optionality risk.Section four reviews the research papers of domestic and foreign scholars on interest rate risk measurement of commercial banks. Then it indicates that the method to measure the interest rate risk evolved from low level to high level and from static sensitivity gap analysis to dynamic simulation analysis. Then it analyses in detail three commonly used methods to measure interest rate risk. This section points out the limitation of the gap analysis and duration analysis in measuring the interest rate risk of individual financial products by commercial banks. It also points out that the simulation technology-based VAR model has been widely used by commercial banks. Tt is necessary to use VAR model to measure the interest rate risk of intermediary services of commercial banks. Finally, the simulation technology-based VAR model l was analyzed. The section defines the VAR and draws the attention of commercial banks to the selection of two factors when they adopt VAR model to measure the interest rate risk of personal financial products. The two factors are time interval and confidence level. The section also describes the three commonly used methods to calculate VAR, or variance - covariance method, historical simulation method and Monte Carlo simulation method.Section five analyzes by comparison the two types of interest rate risk management methods. One is to adjust the balance sheet item for risk avoidance and the other one is the financial derivatives can be used to hedge risks in order to achieve the purpose of control. The latter is recommended in management of personal financial products by commercial banks. Then the section describes the functions of the forward rate agreements, interest rate futures, interest rate swaps, and interest rate options in the interest rate risk management by commercial banks. It points out that the four derivatives have different emphases, and each has advantages and disadvantages. When choosing among these, commercial banks need to consider the financial structure of the products themselves, as well as the adoptable environment and the specific market conditions of these tools.This paper aims to: 1, it focuses on an intermediary business, which is, personal financial products by commercial banks, and analyses the interest rate risk of this services with actual cases of financial products. 2, it makes comparative analysis of the traditional business assets and liabilities of interest rate risk measurement methods to find the most suitable method to measure the interest rate risk of financial products. 3, it uses modern advanced risk measurement techniques, that is, the VAR to measure the interest rate risk of personal financial products by commercial banks. 4, it adopts derivative tool to manage interest rate risk of personal financial products by commercial banks.