This paper develops the theory of the measurement of interest rate risks from its foundations, beginning with the question of which asset values (market or book) are economically relevant and therefore at risk. Upon this foundation, the paper builds a flexible and general theory of the measurement

insurance, stocks, bonds, and money market investment when facing a risky stock market and interest rate risk. We find an analytical solution for the complete market case in which human capital is exactly priced. We also extend the analysis to the case where income is unspanned. An illustrative analysis

Abstract: It is now widely recognized that the interest rate risks embedded in the Fannie Mae and Freddie Mac (F&F) retained mortgage portfolios create a serious threat to the US financial system. This paper evaluates proposals to control the interest rate risk embedded in these portfolios

quality exposures exhibits variable but generally negative correlation with interest rate changes. For low credit quality spreads, the correlation is markedly negative. Transition risk is also negatively correlated with interest rate changes in that VaRs are distinctly higher when calculated using a

The Federal Reserve Bulletin is issued monthly under the direction of the staff publications committee. This committee is responsible for opinions expressed except in official statements and signed articles. It is assisted by the Economic Editing Section headed by S. Ellen Dykes, the Graphics Center under the direction of

2. Efficiency of the Bond Market Portfo

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. Such interest rate risk appears modest, especially relative to the Fed’s policy objectives of full employment and price stability. In the midst of the recent financial and economic crisis, with short-term nominal interest rates essentially lowered to zero, the Federal Reserve started expanding its portfolio

In addition to being of great importance to bank managers (due to the particular significance of Interest Rate to banking institutions: its fluctuation is, at the same time, a premise for success AND potentially fatal in case of inadequate management), Interest Rate Risk is of concern to any

Interest rate risk refers to the exposure of a bank’s net interest income and the market value of its equity to unexpected changes in interest rates (1). The exposure results from differences in the price sensitivities of assets