Risk management and shareholders' value in banking : from risk measurement models to capital allocation policies

778 Pages·2007·6.07 MB·english

by  Andrea Sironi

Risk Management and Shareholders’
Value in Banking
For other titles in the Wiley Finance Series
please see www.wiley.com/finance
Risk Management and Shareholders’
Value in Banking
From Risk Measurement Models
to Capital Allocation Policies
Andrea Resti and Andrea Sironi
Copyright2007 JohnWiley&SonsLtd,TheAtrium,SouthernGate,Chichester,
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LibraryofCongressCataloging-in-PublicationData
Sironi,Andrea.
Riskmanagementandshareholders’valueinbanking:fromriskmeasurementmodelstocapitalallocation
policies/AndreaSironiandAndreaResti.
p.cm.
Includesbibliographicalreferencesandindex.
ISBN978-0-470-02978-7 (cloth:alk.paper)
1. Asset-liabilitymanagement. 2. Bankmanagement. 3. Banksandbanking–Valuation.
4. Financialinstitutions–Valuation. 5. Riskmanagement. I. Resti,Andrea. II. Title.
HG1615.25.S572007
332.1068(cid:1)1–dc22
2006102019
BritishLibraryCataloguinginPublicationData
AcataloguerecordforthisbookisavailablefromtheBritishLibrary
ISBN978-0-0470-02978-7 (HB)
Typesetin10/12ptTimesbyLaserwordsPrivateLimited,Chennai,India
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To our parents

Contents
Foreword xix
Motivation and Scope of this Book: A Quick Guided Tour xxi
PART I INTEREST RATE RISK 1
Introduction to Part I 3
1 The Repricing Gap Model 9
1.1 Introduction 9
1.2 The gap concept 9
1.3 The maturity-adjusted gap 12
1.4 Marginal and cumulative gaps 15
1.5 The limitations of the repricing gap model 19
1.6 Some possible solutions 20
1.6.1 Non-uniform rate changes: the standardized gap 20
1.6.2 Changes in rates of on-demand instruments 23
1.6.3 Price and quantity interaction 24
1.6.4 Effects on the value of assets and liabilities 25
Selected Questions and Exercises 25
Appendix 1A The Term Structure of Interest Rates 28
Appendix 1B Forward Rates 32
2 The Duration Gap Model 35
2.1 Introduction 35
2.2 Towards mark-to-market accounting 35
2.3 The duration of financial instruments 39
2.3.1 Duration as a weighted average of maturities 39
2.3.2 Duration as an indicator of sensitivity to interest rates
changes 40
2.3.3 The properties of duration 42
2.4 Estimating the duration gap 42
2.5 Problems of the duration gap model 45
Selected Questions and Exercises 47
Appendix 2A The Limits of Duration 49