A Study On The Application Of VaR Model In The Bank Interest Rate Risk Management

Along with the advancement of financial reform and the interest rate liberalization reform, the interest rate risk becomes the main risk of China's commercial banks gradually. At present, China's commercial banks have a weak awareness on the interest rate risk and there exists such latent dangers as re-pricing risk, basis risk because of the absence of interest rate risk management tools. Therefore, the interest rate risk management and control will become the main content of commercial banks' risk management. There will be important theoretical and practical value to discuss the choice of commercial banks interest rate risk's measuring techniques and management strategy.VaR model which is a new type of risk management tool, is easy to operate as a quantitative tool to measure and control financial risk. It is widely employed to measure market risk, assess achievements and disclose supervision information by the international banking industry, the securities business and the insurance business. The paper first discusses the various interest rate risk measuring techniques and finds that the VaR model has a huge superiority in the accuracy of interest rate risk measurement by comparison. The paper then takes the CHIBOR as simulative interest rate variable to calculate the VaR value of China's commercial banks and discusses the application possibility of VaR model in the interest rate risk assessment. The empirical result indicates that the negative information has a greater effect on the fund in the inter-bank market. Based on the result, we find that the VaR value calculated by the GARCH-family models which take the asymmetry into consideration depicts the condition of China's commercial bank interest rate risk better. Therefore the VaR model can be used in China's commercial bank interest rate risk appraisal.As a conclusion, the paper raises some recommendations on China's commercial bank interest rate management accordingly. On one hand, we should strengthen and promote the use of VaR model in interest rate risk measurement and assessment; on the other hand, we should also realize that we need to establish a set of perfect interest rate risk management system as the VaR model itself has some defections.