The Research Of Management Of Interest Risk Based On Embedded Option In Commercial Bank

With the rapid development of economic and more in-depth transformation of financial market,we are facing more interest risk and begin to step into the crucial stage of interest risk management.The market-oriented interest rate is an important link in the chain of the market-oriented finance of our country,and its implementation step is speeding up.According to Basel AccordⅡ,commercial bank should build comprehensive interest risk controlling system.Because of the rapid development of financial innovation and derivatives,more and more assets/liabilities with embedded option appear on the balance sheet.Traditional methods of interest rate risk management cannot measure this kind of interest rate risk, so we use option-adjusted spread,effective durations and effective convexity as the measure target.This paper analyzes that assets/liabilities with embedded options of commercial banks influence interest rate risk,and finds that the existence of embedded options causes larger interest rate risk and exposure in commercial banks,so it is necessary to study the technology of interest rate risk management with embedded options.This paper studies the method of option—adjusted spread,which is a simulating model of future cash flow.It is the base of the method of option-adjusted spread of the creation of zero—coupon yield curve and the definition of dynamic interest rate model. In the end,we pay more attention to the actual experience of how foreign banking prevents from the embedded option and provide some effective suggestions to local banks.