Commercial Bank Interest Rate Risk Measurement Model And Management Model

In the 80's of 19th century, the bankruptcy of Pennsylvania bank andContinental Illinois National Bank in the United States,makes people feelthe destructiveness of the interest rate risk profoundly. In the second halfof 2003, commercial banks of our country suffer a huge sum of loss,because of significant slump of bond price, which also makes people startto be aware of the interest rate risk that is thought to have nothing to dowith us at first, but already quietly come out in front of us. The researchon interest rate risk in our country has already no longer just aforward-looking topic, but has been realistic. Why does the interest rate risk exist? Why does the interest rate risklead to such a big destructiveness to the commercial bank? What are themeasurement and management mechanism of interest rate risk? Whatparticular functions of interest rate risk management have in our country?What do the commercial banks in our country do with the interest raterisk under the existing conditions? Which measures contribute to theimprovement of constrains of interest rate risk management? Just becauseof these problems, I write this dissertation: the measurement model andthe management mode of the interest rate risk in commercial banks. This dissertation is totally divided into six chapters: The first chapter, which is composed of 3 sections, studies thehistorical evolvement of interest rate risk measurement and management.Section one depicts the production and development of interest rate riskin commercial bank. It elaborates that interest rate is an endogenousvariable which is influenced by the various economic factors from theessence and the determinism of the interest rate. The uncertainty of theinterest rate is decided by many indeterminations that exist in theeconomic realm in the future, which determines that the interest rate riskcan't be avoided. Then it makes clear the experiences that people regardthe interest rate risk in commercial bank from ignorance to concerning toattaching importance. The second section analyzes the historicalevolvement of the measurement of interest rate risk in commercial banks.Firstly it analyses the evolvement process of individual security interestrate risk which goes through average maturity-Macaulay duration-modified duration-effective duration-option duration adjusted-convexityand duration, and points out that the gradual development of inherentlogic is the relaxed condition of assumption and the improvement ofmeasurement precision. Then it elaborates that the historical evolvementof the experience of interest rate risk measurement in commercial bank isfrom the index method to estimation method then to weighing method,pointing out that the direction of development is the improvement ofaccuracy of interest rate risk measurement, and the reason is that the costof measurement is reduced by the computer technique development andthe income of measurement is raised by the complication of the balancesheet. Section 3 analyzes the historical evolvement of interest rate riskmanagement of the commercial banks. The analysis of historicalevolvement is developed from the internal management and exteriorsupervision of interest rate risk in commercial banks. Through theresearch of this chapter, it has answered the reason that the interest raterisks appear, has depicted different measurements and managements withthe interest rate risk in developed market economy of the westerncountries at different developing stages, which provides the historicalreference for mode selection of commercial bank interest rate riskmanagement of our country. Chapter two studies the measurement foundation of interest rate riskof commercial banks, the establishment of yield curve of zero-couponbond. The whole chapter is divided into three sections. Section onediscusses the basic function of yield curve of zero-coupon bond in themeasurement of interest rate risk, pointing out that the yield curve ofzero-coupon bond is the analytical foundations of the theory of interestrate's term structure, and also is the benchma...