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Mastering R for Quantitative Finance by Edina Berlinger, Ferenc Illés, Milán Badics, Ádám Banai, Gergely Daróczi, Barbara Dömötör, Gergely Gabler, Dániel Havran, Péter Juhász, István Margitai, Balázs Márkus, Péter Medvegyev, Julia Molnár, Balázs Árpád Szűcs, Ágnes Tuza, Tamás Vadász, Kata Váradi, Ágnes Vidovics-Dancs

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Interest rate risk measurement

Managing interest rate risk is one of the most important components of asset and liability management. Variation of the interest rate could affect both the interest earnings and the market value of equity. Interest rate management focuses on the sensitivity of net interest income. Net interest income (NII) equals the difference between interest revenues and interest expenses:

Interest rate risk measurement

Here, SA and SL denote the interest sensitive assets and liabilities, and NSA and NSL refer to the non-sensitive ones. Interest rate of assets and liabilities are noted with and . The traditional approach of interest rate risk positioning of the ...

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