Interest Rate Risk Measurement and Management - Nawalkha, Chambers

This collective book provides the broadest and the most up-to-date compilation of articles in the field of interest rate risk management. The list of authors include prominent specialists in the area of fixed income such as Gerald O. Bierwag, Douglas T. Breeeden, Donald R. Chambers, Michael Z.H. Chen, Ravie E. Dattatreya, Frank J. Fabozzi, Bennet W. Golub, Thomas S.Y. Ho, Robert A. Jarrow, George G. Kaufman, Martin L. Leibowitz, Sanjay K. Nawalkha, Leo M. Tilman or Ram Willner, among others.

The first part of the book contains three sections that consist of papers on the development of single and multiple factor interest rate risk models. These papers include topics such as duration, M-absolute, convexity, M-square, duration vector, common factors affecting bond returns, reshaping durations, and other multifactor interest rate risk measures. The second part of the book contains four sections that consist of papers on interest rate risk models for alternative types of fixed income contingent claims such as bond options, callable bonds, puttable bonds, interest rate futures, mortgage bonds (e.g., CMOs, IOs, POs, etc.), default-prone bonds, interest rate swaps, and floating rate bonds with embedded options. These papers include advanced topics such as key rate durations, key rate convexities, value at risk, risk point measures, duration vector of options and futures, height, slope, and curvature durations, empirical and effective durations of mortgages, prepayment convexities of mortgages, statistical duration of corporate bonds, durations of caps, floors and collars, and duration of swaps. The final part of the book contains two sections, which consider interest rate risk management models for financial institutions. These applications include interest rate risk models for depository institutions (e.g., duration gap models) and FDIC (e.g., duration model of deposit insurance), interest rate risk models for the thrift industry, and surplus risk models for pension funds.

The target audience for this book includes bond fund managers, bond traders, fixed income analysts, bank regulators, and upper level managers of commercial banks, savings and loans associations, credit unions, savings banks, insurance companies, pension funds, and all other financial institutions with big fixed-income assets or liabilities. The book can also be used as a part of a graduate course in fixed income at academic institutions.

  • Level: Basic+
  • Major Topics: T11, T15
  • Minor Topics: T12, T22, T23, T26, T32


Book Description



Interest rate volatility has increased dramatically over the past twenty-five years. The swings in the values of fixed income investments are now comparable to those in equity investments. Long maturity fixed income funds are no longer considered “safe” investments for investors with relatively short horizons. Financial institutions such as commercial banks, savings and loan associations, pension funds, and insurance companies are all aware of the potential negative effects of duration mismatches in their asset-liability structure... read more


Table of Contents

Part I. Single and Multiple Factor Interest Rate Risk Models
1.1. First Order Duration Risk Measures
1.2. Second Order Duration Risk Measures
1.3. Higher Order Duration Risk Measures and Other Multifactor Interest Rate Risk Models

Part II. Interest Rate Risk Models for Fixed Income Derivative Securities
2.1 Interest Rate Risk Models for General Interest Rate Contingent Claims
2.2 Interest Rate Risk Models for Mortgage-Backed Securities
2.3 Interest Rate Risk Models for Default-Prone Corporate Bonds
2.4 Interest Rate Risk Models for Floating Rate Securities with Embedded Options

Part III. Interest Rate Risk Models for Financial Institutions and Regulators
3.1 Interest Rate Risk Models for Depository Institutions and the FDIC
3.2 Interest Rate Risk Models for Insurance Companies and Pension Funds... read more



"This volume is a treasure chest of the best thinking from a wide spectrum of authors, all of whom have been deeply involved in finding ways to deal with various faces of interest rate risk."
Martin L. Leibowitz, Vice Chairman and Chief Investment Officer, TIAA-CREF.

"This valuable book collects many of the classic articles on interest rate risk from the past two decades: a period characterized by unprecedented volatility and groundbreaking research into its manifestations."
Ronald N. Kahn , Managing Director, Barclays Global Investors.

"This is a terrific book! It is an in-depth, up-to-date, and comprehensive collection of work in the area of interest rate risk management."
Frank Fabozzi, Adjunct Professor, Yale University, Editor, The Journal of Portfolio Management.

"This is an excellent addition to the risk management bookshelf. The lucid and insightful contributions by highly respected experts are a must read."
Anthony G. Cornyn, Director of Risk Management for Federal Banking Agency.

"Interest Rate Risk Measurement and Management provides a comprehensive coverage of interest rate risk analytics and their applications. This handbook is valuable to all fixed-income professionals."
Thomas S. Y. Ho, Executive Vice President, BARRA.

"This book is an excellent collection of articles on bond markets and is ideal for continuing education of fixed income professionals."
Douglas Breeden, Chairman, Smith Breeden Associates, Editor, The Journal of Fixed Income.