Research Of Interest Rate Term Structure Based On Commercial Bank Internal Funds Transfer Pricing

In 2007, China's financial markets were fully opened. Since then, the commercial banks in China are facing more and more competitions, not only from other domestic banks, but from the advanced foreign banks. In addition, with the marketization of interest rates, the policy advantages for China's banks will no longer exist, and the risk of the marketization are becoming increasingly prominent. Therefore, our commercial banks should work hard to enhance the management capacity and competitiveness in order to meet the severe challenges.Internal funds transfer pricing system is a modern capital management model which has been accepted and used by many foreign commercial banks. The system is effective in improving the management of the interest rates risk, strengthening the ability of product pricing, optimizing the resource allocation and realizing the fair performance appraisal system. Thus the commercial banks in our country should establish a suitable FTP system in order to deal with the increasing risk of the interest rates in the market.The key to build a FTP system is to construct a risk-free yield curve. The curve is usually replaced by a curve for the bond's yield, through the bond market term structure of interest rates fitting. The fitting methods directly affect the accuracy of the yield curve, thus affect the implementation of the FTP system. In this article, we will discuss several key static term structure models, and select the N-S model for empirical analysis.The main function of the FTP system is to improve the interest rate risk management ability in commercial banks. The interest rate risk management ability in financial center will decide the effect of the FTP system because the system realizes the unified management of the fund by separating the interest rate risk from the business sector. Thus in order to avoid the risk, the financial center should have a better understanding of the dynamic changes of the interest rates. This article introduces several key dynamic term structure models, and discusses HJM model in particular.