Duration Model Based On Default Risk And Its Application In Bank Asset-liability Management

Commercial bank Asset--Liability management is an overall risk control and resourceallocation method, its management goal is to meet the commercial bank’s threebusiness principles, namely liquidity, safety and profitability. In recent years, asChina’s interest rate liberalization process going further, financial deregulation beingloosen and financial innovation geting strengthen, on the one hand, interest ratefluctuations will become more frequent and difficult to predict,the management ofcommercial banks is facing greater interest rate risk; On the other hand, China’sfinancial market will be more open, commercial banks will have more autonomy inloan pricing, financial environment will also be more complex. And then the creditrisk of commercial banks will be tougher. Since the1990s, plenty of facts have shownthat credit risk and interest rate risk are often mixed together to influence themanagement of commercial banks. Therefore, it is essential to enhance the banks’ riskresistance capacity and competitive by improving the ability of controlling both ofcredit risk and interest rate risk of commercial banks and optimizing effieieney andquality of assct alloeation.This paper is divided into five parts. The first part is the introduction, described theresearch background and related research status, the theoretical and practicalsignificance, and the research methods and the innovations. The second partestablished the default risk duration model based on the Geometry Average AsiaOption with the knoeked fixed Price, which combined the fact situation of China’sfinancial institutions, that the short and medium-term loan pricing decisions behaviorof China’s financial institutions is not only dependent on the borrower’s maturity dateinformation, but depends on the information of the entire loan period, includingcurrent information and prior information. The third part targeting the maximizationof the interest income of bank asset portfolio as the objective function, regarding theduration gap based on default risk, the related regulations and commercial bankmanagement constraints as the constraint condition, established the interest ratesimmune optimization model based on default risk duration model.The fourth partgived a detailed example of the optimization model. The fifth part is the conclusionand prospect section of the paper.