The optimal control of interest rate risk in commercial banks with dynamic stochastic optimization method

Traditional static interest rate risk management models are only suitable for immunization from a certain change of interest rate, otherwise, we'll be confronted with Stochastic Process Risk; and these models require that all of interest rate term structure be completely interrelated. Under interest rate marketization, these defects are more obvious. This paper constructs a multiple target model mapping with Zimmerman(1991)' stochastic optimization method, which makes commercial banks at the end term of decision satisfy interest rate risk minimized and yields maximized, after reasonably determining the value of decision variables. Calculation case shows that in the given initial value and restraints, dynamic stochastic duration immunization model can be better to lessen the exposure position of interest rate risk and increase yields than static interest-rate-risk-management model. Meanwhile, when facing with higher interest rate risk, the former can be better to mitigate risk exposure than the later, and then it is more robust.