Financial Derivatives, Interest Rate Risk Management In Commercial Banks

The process of China's interest rate marketability is accelerating step by step, which will inevitably cause the interest rate margin of fluctuation enlarging. In the past 2007, loan-to-deposit interest rate was adjusted six times, and one-year deposit interest rate was adjusted from 2.79 percent to 4.14 percent, while the loan rate was adjusted from 6.39 percent to 7.47 percent. When facing with the rate adjustment frequency obvious quickening, the Commercial banks will be exposed in the huge interest risk without effective interest risk management tool as necessary mechanism, and the progress of interest rates marketability also will be affected.As the approach of adjusted balance sheet is relatively simple in the operation, it is widely used by commercial banks. But this approach is based on accurate forecasts on future interest rates, which is very difficult to achieve, and even accurate forecast, it should pay high costs. While financial engineering approach needn't accurate forecasts, and can effectively lock profits through paying smaller cost in advance. Therefore, this paper attempts to introdcue financial derivatives to manage the commercial banks interest rate risk.This paper, firstly, introduces the basic concepts and traditional management technologys of the interest rate risk, and then combining with the reality, analyses the commercial banks current interest rate risk management Status. In view of the deficiencies within the traditional approach, it introduces in finance derivatives, which are widely used in risk management by western countries, and especially refocuses on the appliance of the Interest Rate Futures on the interest rate risk hedging. Because of the special nature of the bank interest rate risk management, and based on traditional hedging model, this paper develops a new nonlinear hedging model, which can more accurately describe the risk aversion decision-making characteristics. Finally, it analyses the feasibility of China's commercial banks bringing in financial derivatives, and proposes the path and strategies for China financial derivatives market.