TABLE OF CONTENTS A handbook on Basel II risk analysis is not complete without a discussion of risk hedging, specifically, looking at the effects of interest rate risk, the risk return profiles of a portfolio and the effects of correlation on portfolio risk, foreign exchange risk, volatilities, and the construction of the yield curve. In addition, the topic of financial and economic forecasting techniques is also included at the end of the chapter because every banker and financial analyst should understand the various concepts of advanced analytical forecasting (used in forecasting an obligor s financial conditions, interest rates, inflation rates, stock performance, pro forma statements, and revenues or cash flows in the future, and many other applications). These topics are discussed in this chapter through the use of several hands-on example models.
File Name: Risk Analysis Interest Rate Risk
Location: Modeling Toolkit Risk Analysis Interest Rate Risk
Brief Description: Applies duration and convexity measures to account for a bond s sensitivity and how interest rate shifts can affect the new bond price, and how this new bond price can be approximated using these sensitivity measures
Requirements: Modeling Toolkit, Risk Simulator
Modeling Toolkit Functions Used: B2BondPriceDiscrete, B2ModifiedDuration, B2ConvexityDiscrete
Banks that sell fixed income products and vehicles need to understand interest rate risks. This model uses duration and convexity to show how fixed income products react under various market conditions. To compare the effects of interest rate and credit risks on fixed income investments, this model uses modified...
