Based On The Implicit Option Of Commercial Bank Interest Rate Risk Measurement

Under the market interest rate environment, with the innovation of the financial derivatives the fluctuation of interest rate becomes more violent and frequent. Thus the measurement of the risk of interest rate attracts many people' s attention. Based on the traditional measurement of interest rate risk and under the market interest rate environment, this paper mainly discussed the measurement of interest rate risk for the commercial banks whose assets or debts have embedded options. With the use of Monte Carlo simulation and the case of MBS , the paper discussed the calculation of the option-adjusted spread. With the use of CIR model as the term structure, this paper successfully avoided the emergence of minus interest rate during the MC simulation. In addition, the paper compared the interest rate risk of commercial banks under two duration exposures - the Macaulay duration exposure and the effective duration exposure.