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Interest Rate Risk Analysis

Duration Analysis

Getting Up To Speed on Duration Analysis - Part 1

by Tom Farin
March-April 1993

This is the first of a two part article on duration analysis. It covers the following issues:

Getting Up To Speed on Duration Analysis - Part 2

by Tom Farin
May-June 1993

This is the second of two articles on duration analysis. It covers the following issues:

Non-Maturity Deposit Rate Sensitivity Analysis

The Key Role of Core Deposits in Interest Rate Risk Analysis

Part 1: Pricing Retail Deposits and Services
by Tom Farin
March-April 1993

This is the first of a four part series dealing with evaluating the rate sensitivity of core deposits. This article deals with:

The Key Role of Core Deposits in Interest Rate Risk Analysis

Part 2: Developing A Core Deposit Pricing Analysis - Separating Rate-Sensitive from Non-Rate Sensitive Deposits
by Tom Farin
May-June 1993

This is the second of a four part series dealing with evaluating the rate sensitivity of core deposits. This article deals with:

The Key Role of Core Deposits in Interest Rate Risk Analysis

Part 3: Developing Decay Rates and Identifying Transaction Account Cash Flows
by Tom Farin
July-August 1993

This is the third of a four part series dealing with evaluating the rate sensitivity of core deposits. This article deals with:

The Key Role of Core Deposits in Interest Rate Risk Analysis

Part 4: Applying Discount Rates and Marking Core Deposits to Market
by Tom Farin
September-October 1993

This is the fourth of a four part series dealing with evaluating the rate sensitivity of core deposits. This article deals with:

Hedging Option Risk in Fixed-Rate Mortgages - With Core Deposits?

By Tom Farin
January-February 1994

In this article, Tom Farin looks at the effectiveness of using non-maturity deposits as a hedge against the interest rate risk in long-term assets like fixed-rate mortgages.

Core Deposit Analysis - An Update - Part 1

By Tom Farin
January-February 1995

In this first article of a two-part series, Tom Farin looks begins an update of the core deposit series produced in 1993. This article updates material presented in previous issues.

Core Deposit Update - Part 2

By Tom Farin
April-May 1995

In this second part of a two part series, Tom Farin introduces a more sophisticated method for calculating decay rates on non-maturity deposits. The method considers changes in the mix between rate-sensitive and non-rate sensitive funds that occurs over time with fluctuations in market rates.

Hedging Option Risk in Fixed-Rate Mortgages - With Core Deposits?

By Tom Farin
January-February 1994

In this article, Tom Farin looks at the effectiveness of using non-maturity deposits as a hedge against the interest rate risk in long-term assets like fixed-rate mortgages.

Discount Rates

Focus on Market Value Requires Attention to Discount Rate Methodology

By Tom Parliment
May-June 1993

Tom goes through the methodology for valuing a financial instrument.

Setting Discount Rates For Market Value Calculations

By Tom Farin
November-December 1994

Tom Farin looks ways of establishing discount rates to be used in market value calculations. A variety of alternatives are examined with the advantages and disadvantages of each explained.

Prepayment Assumptions

Documenting and Supporting Prepayment Assumptions

By Tom Farin
January-February 1994

Tom Farin looks at methods for calculating, documenting, and supporting prepayment assumptions used in interest rate risk management calculations.

Total Rate of Return (TRR)

Integrating Total Rate of Return Into Dynamic Interest Rate Risk Analysis

By Tom Farin
March-April 1994

In this article, Tom Farin looks at total rate of return analysis (TRR). In the first part of the article TRR is used in ranking a series of investment opportunities. He then suggests how it might be integrated with interest rate risk analysis.

Using Simulation Technology to Model Total Rate of Return

By Tom Farin|
March-April 1994

Tom Farin looks at how a simulation model might be used as a tool in extending TRR analysis to the entire balance sheet.

The article shows how the calculations were performed in arriving at the rankings In Tom Parliment's 'Searching for the Virtuous FRM' article.

Searching for the Virtuous FRM

By Tom Parliment
March-April 1994

Tom Parliment talks about the advantages and disadvantages associated with putting fixed-rate mortgages in your portfolio at the bottom of the interest rate cycle. Total rate of return analysis is used in ranking alternative loans that might be placed in an institution's portfolio under different interest rate environments.

This article is included in this section as it applies TRR techniques covered in the previous article to ranking mortgage loan choices

Using Total Rate of Return Analysis to Evaluate Alternative Funding Sources

By Tom Farin
May-June 1994

In this article, Tom Farin extends the concept of TRR to choice between funding alternatives. In the Fort Knox savings & Keep example, he looks at three alternative ways of funding growth.

Total Rate Of Return - Does it Make Sense in Evaluating HTM Portfolios?

By Tom Farin
September-October 1994

In this article, Tom Farin looks at the issue of whether it makes sense to use TRR analysis when managing portfolios that are held to maturity and therefore will see no fluctuation on book value.

Market Value Risk Measurement

Developing a Dynamic Interest Rate risk Management Program - Part 2

by Tom Farin
November-December 1993

This is the second of a two part series on moving interest rate risk management from static to dynamic.

This article is cross referenced in this section because it introduces a method for using a simulation model for market value testing. Other articles in this series are under Interest Rate Risk Policy.

Developing Interest Rate Risk Policy Limits - Part One

by Tom Farin
November-December 1994

This is the first of a four part series on establishing interest rate risk policy limits, written by Tom Farin. It examines regulatory initiatives including FAS 115. Then it looks at the use of both income and market value measurement systems.

CD Wars: Valuing Depositor Relationships - Part Two

By Tom Parliment

Tom Parliment looks at the effect on franchise value of attracting retail deposits at sub-wholesale rates.

This article is listed in this section because it focuses on managing market value of funding. Remaining articles in this series are in the Deposit Pricing section.

Selling Retail Options: Part Two

by Tom Parliment
July-August 1995

In the second part of this two part series, Tom Parliment lays out how to value options embedded in retail financial instruments.

The reason this article is in this section is that it lays out an approach for valuing options in retail financial instruments. The other article in this series is in the ALM Strategies section.

Managing The Value of Your Bank

by Tom Parliment
January-February 1996

In this article, Tom Parliment lays out the math for determining whether stockholders should retain bank stock (Hold) or sell bank stock (fold). Both valuation theory and assessing issues that will affect future values are discussed.

Market Value – It’s Not Just a Regulatory Compliance Tool!

By Tom Farin
January-March 2001

In this article, Tom Farin discusses the value of both income simulation and market value analysis in evaluating risk/return tradeoffs in alternative strategies for improving an institution's performance. Along the way, he explains, models and evaluates a solution to the short-term problems in the MissFed case.

Income Simulation

Developing a Dynamic Interest Rate risk Management Program - Part 2

by Tom Farin
November-December 1993

This is the second of a two part series on moving interest rate risk management from static to dynamic.

This article is cross referenced in this section because it introduces a method for using a simulation model for net income testing. Other articles in this series are under Interest Rate Risk Policy.

Developing Interest Rate Risk Policy Limits - Part 1

By Tom Farin
November-December 1994

This is the first of a four part series on establishing interest rate risk policy limits, written by Tom Farin. It examines regulatory initiatives including FAS 115. Then it looks at the use of both income and market value measurement systems.

Developing Effective Interest Rate Risk Policy Limits - Part 2

By Tom Farin
January-February 1995

In this second of a four part series, Tom Farin looks the impact of portfolioing poorly priced ARMs in a rising rate environment. Many institutions fall outside interest rate risk policy limits. He suggests dynamic interest rate risk analysis as a took to buy time.

Developing Effective Interest Rate Risk Policy Limits - Part 3

By Tom Farin
April-May 1995

In this third article of a four part series, Tom Farin lays out an approach to establishing income oriented policy limits. He then describes how a simulation model can be used as a dynamic measurement tool to evaluate an institution's performance relative to its limits.

Developing Effective Interest Rate Risk Policy Limits - Part 4

By Tom Farin
July-August 1995

In part 4 of this four part series, Tom Farin discusses how to establish market value oriented policy limits. He also points out some inconsistencies between the message provided by market value measurement systems and the reality of running a real world institution.