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Využití modelu BGM při řízení úrokového rizika v českém prostředí v období po finanční krizi
[Aplication of the BGM Model for Interest Rate Risk Management in the Czech Environment after Financial Crisis]

Author

Listed:
  • Dana Cíchová Králová

Abstract

This article proposes an approach to an interest rate analysis for purposes of risk management.of fi nancial portfolio consisting of assets or liabilities linked to interest rates and held to maturity in the Czech environment. Czech fi nancial market is characterized by relative underdevelopment and relatively low liquidity, and in an environment of high uncertainty due to interventions and regulations of central banks and other authorities. This article fi rst describes the volatility of the Czech koruna and euro interest rates using the GARCH model. Based on this description, relationships between levels of koruna and euro swaptions volatilities are determined. After obtaining estimates of koruna swaptions implied volatilities, the BGM interest rate model is applied to Czech koruna and euro interest rate simulations. They are then compared with the real development of given interest rates. It turns out that although the BGM model was developed for the purpose fi nancial derivatives valuation in the environment of developed and liquid fi nancial markets without signifi - cant distortions, resulting simulations are relatively good, and their use can improve interest rate risk management even in the Czech environment.

Suggested Citation

  • Dana Cíchová Králová, 2015. "Využití modelu BGM při řízení úrokového rizika v českém prostředí v období po finanční krizi [Aplication of the BGM Model for Interest Rate Risk Management in the Czech Environment after Financial ," Politická ekonomie, Prague University of Economics and Business, vol. 2015(6), pages 714-740.
    • Handle: RePEc:prg:jnlpol:v:2015:y:2015:i:6:id:1023:p:714-758
    DOI: 10.18267/j.polek.1023
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    References listed on IDEAS

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    More about this item

    Keywords

    volatility; GARCH; euro; Czech Koruna; interest rate risk; BGM model;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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