Measuring and managing interest rate risk in commercial banks with embedded option:convexity-gap model
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    Abstract:

    Interest rate risk management for commercial banks with embedded option is investigated based on the convexity gap model in this paper. The HPL MC method is proposed for measurement of interest rate risk of the embedded option, and an objective programming model is constructed to manage interest rate risk. The results of numerical example demonstrate that this model is effective than duration gap model in robustness and risk exposure reduction.

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