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Simulation of the term structure. An application for measuring the interest rate risk

Author

Listed:
  • Mirta González

    (Central Bank of Argentina)

  • María Cecilia Pérez

    (Central Bank of Argentina)

Abstract

In order to provide a tool for risk management improvement and appropriate regulation, a methodology for measuring interest rate risk is applied in this paper. After estimating and simulating the interest rate term structure, the value at risk and expected shortfall are calculated on a portfolio. An application of alpha-stable distributions has allowed representing the asymmetric, leptokurtic and heavy tailed shape of financial returns and occurrence of extreme scenarios.

Suggested Citation

  • Mirta González & María Cecilia Pérez, 2015. "Simulation of the term structure. An application for measuring the interest rate risk," BCRA Working Paper Series 201570, Central Bank of Argentina, Economic Research Department.
    • Handle: RePEc:bcr:wpaper:201570
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    File URL: http://www.bcra.gov.ar/Pdfs/Investigaciones/WP_70_2015e.pdf
    File Function: Versión en Español
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    More about this item

    Keywords

    interest rate risk; regulation; risk management; term structure;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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