Duration Model In The Application Of The Commercial Bank Interest Rate Risk Management

In view of the increasingly deepening financial market reform in domestic China, the risk exposure on interest rate fluctuation is sharply expanding. It’s believed the fluctuation of interest rate is becoming the key risk on the commercial banking assets management. Thus we should be fully aware of the significance of this issue and keep conducting corresponding analysis and researches so to constantly mitigate the risk.This dissertation starts from the background introduction on market-oriented interest rate, and then brings out some relevant interest rate risks relating to commercial banks. After that the paper analyzes some major models & tools like the Sensitive Gap mode, Duration model, VaR model, which are used to measuring interest rate risk. By comparing the strengths and weaknesses of those models, the paper further highlights the detailed explanation and comparative analysis on Duration model.In the demonstration part, four domestic commercial banks, which entered into domestic capital market in the earliest stage, are selected as empirical research samples. Equipped with the tools of Duration model and Gap management method, the corresponding financials of these listed banks were utilized, and finally got the conclusion of the interest rate risk management in China. According to the demonstration data, we could learn that the positive duration gap will decrease the net assets of comment bank while interest rate increasing. Commercial bank should adjust its asset and liability for reducing the duration gap so as to cut down the interest fluctuation risk. Besides, combining the Gap management method, we could further improve the structure of asset and liability, and vice versa. In the last part, the author provided some advices, and expected this could be helpful to domestic commercial banks for further monitoring and mitigating the interest risk fluctuation.