Measuring Interest Rate Risk Of Commercial Bank: Model Comparison And Application In China

Interest rate is the core of economy and finance. In financial market, the fluctuation of interest rate can determine the movement of currency market and capital market. From 70's last century, there had been a tide of liberalization of finance in the world economy. And the kernel of the tide is liberalization of interest rate, which increase the competence in financial market, improve the efficiency of management of bank. But the fluctuation of interest rate had brought huge risk to commercial bank, which had exhibited the uncertainty of net interest income and market value. This is interest rate risk, which had become the main risk of Occident commercial bank.After the appearance of risk, banker must identify and measure it, which is the foundation of management of risk of interest rate. With the more and more attention to this kind of risk, Occident commercial bank had constructed effective mechanism of measuring interest rate risk. With liberalizating interest rate in our country, the uncertainty of movement of interest rate has increased in our financial market. Our commercial bank will face more risk of interest rate. Our commercial bank should improve the ability of managing risk of interest rate, which is inherent requirement in our banks' adaption to the reform of deregulation of interest rate. At this moment, it's necessary to put forward the issue of interest rate risk, and study it deeply.In this paper, I analyzed the internal and external reasons of interest rate risk. Then I introduced the types of interest rate risk, the principles of measuring risk of Basle committee on banking supervision and the main models (repricing model, duration model, income simulation analysis and NPV model) of measuring interest risk in Occident commercial bank. After comparative analysis, we study the applicability of each model in China commercial bank. Whereafter, I used repricing model to analyze the interest rate risk in a province branch of some commercial bank. At last, I provide some feasible methods to improve the ability of our commercial banks to control their interest rate risk.