Tid: 5 juni 2017 kl 16.00-17.00.

Föredragshållare: Andre Berglund och Carl Svensson

Titel: On the risk relation between economic value of equity and net interest income

Abstract The Basel Committee has proposed a new Pillar 2 regulatory framework for evaluating the interest rate risk of a bank's banking book appropriately called Interest Rate Risk in the Banking Book. The framework requires a bank to use and report two different interest rate risk measures: Economic Value of Equity (EVE) risk and Net Interest Income (NII) risk. These risk measures have previously been studied separately but few models have been proposed to investigate the relationship between them. Based on previous research we assume that parts of the banking book can be approximated using a portfolio strategy of rolling bonds and propose a model for relating the connection between the portfolio maturity structure, EVE risk and NII risk. By simulating from both single- and multi-factor Vasicek models and measuring risk as Expected Shortfall we illustrate the resulting risk proles. We also show how altering certain theoretical assumptions seem to have little effect on these risk profiles.

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