Study Of Commercial Bank Interest Rates And Implicit Options Approach To Risk Management

This paper mainly studies embedded options of interest rate riskmanagement of commercial banks.It is very important to explore methodsof interest rate risk management through the analysis of background andstatus in and out of the country.Because of the rapid development of financial innovation andderivatives,more and more assets/liabilities with embedded optionsappear on the balance sheet.Traditional methods of interest rate riskmanagement cannot measure this kind of interest rate risk,so producesoption-adjusted spread, effective durations and effective convexity.Thispaper analyzes that assets/liabilities with embedded options ofcommercial banks influence interest rate risk, and finds that the existenceof embedded options causes larger interest rate risk of commercialbanks,so it is necessary to study the technology of interest rate riskmanagement with embedded options.This paper studies the method of option-adjusted spread,the modelof which is a simulating model of cash flow.It is the base of the method ofoption-adjusted spread of the creation of zero-coupon yield curve and thedefinition of dynamic interest rate model.It is the key to choose the rightsimulating technique of interest rate scene. This paper createszero-coupon yield curve from listed bonds,estimates parameters ofdynamic interest rate model with maximum likelihood way.Through VCprogramming language and intelligent applied software,the paper realizesthe simulation of the path of interest rates,decide cash flow combinedwith the prepayment model,finally calculate option-adjusted spread.