Managing banks' duration gaps when interest rates are stochastic and equity has limited liability |
| |
| Affiliation: | 1. Department of Finance, Hong Kong University of Science and Technology, Clearwater Bay, Kowloon, Hong Kong, People''s Republic of China;2. Department of Finance and Business Law, University of North Carolina-Charlotte, 9201 University City Blvd., Charlotte, NC 28223, USA;3. Division of Banking and Finance, Nanyang Technological University, Nanyang Ave., Singapore 639798;1. Accounting and Finance Division, Stirling Management School, University of Stirling, UK;2. Business School, University of Dundee, UK;1. Department of Economics and CREIP, Universitat Rovira i Virgili, Avinguda de la Universitat 1, 43204 Reus, Spain;2. Department of Econometrics, Riskcenter-IREA, University of Barcelona, Avinguda Diagonal, 690, E-08034 Barcelona, Spain;1. CREM, UMR CNRS 6211, Université de Rennes I, Rennes, France;2. Department of Economics, Université Paris-Dauphine, Paris, France;1. Research Institute, Shenzhen Stock Exchange, China;2. School of Economics, Singapore Management University, Singapore |
| |
| Abstract: | Interest rate risk is an important consideration in both the management and regulation of depository financial institutions. Although the market value of equity is the most often used target of gap management, the conventional tools employed in the literature ignore a crucial characteristic of equity, viz., limited liability. In this article, we compare conventional techniques used to measure the duration gap for depository institutions with the limited liability techniques recently developed in the literature. Our results show that conventional models may over-estimate banks' interest rate risk exposures, especially during times when interest rate volatility and credit risk are at above average levels. This over-estimation may lead banks to make errors in their gap management. |
| |
| Keywords: | |
| 本文献已被 ScienceDirect 等数据库收录！ |
|
