After risk management and interest risk management in particular was primarily relevant for banks in the past, it is a crucial competition factor for all enterprises today. With increasing volatile financial markets and global competition CFOs are focusing more and more on an efficient measurement and management of interest rate risk. In this context this book aims to point out the risks of an adverse change in interest rates for a corporate portfolio of interest-bearing positions and show possibilities to measure and manage these risks. First the scene for interest risk management in a corporate treasury of a service enterprise is set by providing essential knowledge about financial risk management and giving an insight into the characteristics of a service enterprise as well as the responsibilities of a corporate treasury and the factors that influence the treasury risk management approach. This is followed by a process-oriented instruction of how to quantify interest rate risk and how to manage it. Besides the risk measures duration and convexity, two different approaches to value at risk, the historical simulation and the variance-covariance-approach, will be examined. For the management of the interest rate risk an overview of possible hedging instruments to reduce interest risk exposure will be given and their different strategies examined. All approaches will be measured against their practical feasibility and for both, the quantification and the management of interest rate risk, implications for the implementation in a service enterprise will be provided.

Text Sample: Chapter 4.3.4, Value at Risk of Derivatives: Derivatives can be classified as symmetric or asymmetric according to their profit-loss-profile. Independent of the applied risk measurement approach the determination of the risk for symmetrical interest rate derivatives is always based on the same principle. The instruments are fractionalised into their cash flow equivalents of different maturity ranges. Then the VaR can be determined as described for non-derivative interest-bearing instruments. In order to compute the VaR, for interest-bearing instruments with option rights, the so-called asymmetrical financial instruments, a delta must be considered. The delta of an option expresses the dependence of the option price on the underlying asset. The delta is computed as the first derivative of the option price function with respect to the value of the underlying asset. The delta of a call is between 0 and 1 and that of a put between 0 and -1. The delta of options that are afar out the money is 0. If the option is in the money, the delta of a call approaches 1 and that of a put approaches -1. The delta normal approach adjusts the VaR of the option by its delta. However, since the delta is not static but ever changing this method often leads to a wrong estimation the risk. To eliminate this estimation error the delta-gamma approach can be applied. This approach considers the convexity the option price curve. The gamma is computed as the second derivative of the price function with respect to the value of the underlying asset. Thus the delta-gamma approach considers the change of the delta resulting from changes in the value of the underlying asset. However this approximation still leads to estimation errors when the remaining time to maturity approaches zero and/or the option is clearly in the money. 4.4 Cash Flow Mapping: 4.4.1 Determining the Cash Flow Structure: In order to quantify the interest rate risk of a portfolio of interest-bearing positions, first of all the assets and liabilities will be split into a portfolio of different individual cash flows. The resulting cash flow structure points out exactly, which redemption and interest payments become due at what point in time. Through the netting of positive and negative cash flows with identical maturities the sum-cash-flow can be derived. The sum-cash-flow can be discounted with the spot rates for each maturity range (see formula 4.1). This cash flow figure in present value terms constitutes the key factor of the interest risk management. By knowing the cash flow structure of the entire interest-bearing positions it is possible to analyse what interest rate developments lead to high losses and what to large profits for the company. Assuming a net-financing position, the negative portfolio value increases with falling market interest rates. The longer the duration of the cash flows, the stronger is the effect of interest rate changes on the present value of the portfolio. However it needs to be considered that an interest rate change generally does not occur in all maturity ranges in the same altitude and at the same time (Figure 11: Interest Rate Risk of Positive and Negative Cash Flows). To interpret the cash flow structure and analyse its sensitivity to interest rate changes it is generally advantageous to group the cash flows and thereby reduce the total number of cash flow dates. Without simplifying measures it is in practice hardly possible to measure the interest rate risks of the entire portfolio with its multitude of cash flows. Moreover the subsequent management of the risk of such a detailed sum-cash-flow would be very unpractical and cost-intensive. If for simplifying reasons the risk factor data provided by RiskMetricsTM shall be applied in the risk measurement process, the cash flows need to be mapped to the dates used by this model. The volatilities and correlations of the zero bond rates are published for 14 different maturity dates and a holding period of one and ten days. As an important precondition for the mapping of cash flows the original cash flow and the cash flow after mapping have to equal each other to a large extent in terms of their present value and their response to interest rate changes. For the technique of cash flow mapping sensitivity-oriented approaches and those methods, that incorporate the volatility as well as the correlations of the spot rates, can be differentiated. In the following sections the sensitivity mapping and the variance mapping will be introduced.

• Zinsrisiko

• Interest Risk

• Value at Risk

• Hedging

• Service Enterprise

• Financial Risk

Jana Schönborn, Jahrgang 1982. Nach ihrer Berufsausbildung zur Bankkauffrau sowie circa zweieinhalb Jahren Berufserfahrung in der Sparkassenorganisation, entschied sich die Autorin ihre betriebswirtschaftlichen Qualifikationen durch ein Studium weiter auszubauen. Das Bachelorstudium International Business schloss die Autorin im Jahre 2010 erfolgreich ab. Zurzeit ist die Autorin im Middle Office einer großen deutschen Fluggesellschaft tätig.