CFO CURRENCY: Modeling Interest Rate Volatility
BY ALEC HOLLIS
In the financial arena, volatility is virtually unavoidable. But there are ways to circumvent the risk and uncertainty. Interest rate volatility modeling is one of these workarounds. Read on to learn why such modeling techniques are vital to sound interest rate risk management at your credit union.
Conventional financial wisdom equates risk to volatility.Understanding volatility is to understand that we invest in markets characterized by uncertainty.Volatility in interest rates has a major impact on the pricing of financial instruments with embedded options, such as mortgages, callable bonds and interest rate derivatives. Therefore, modeling interest rate volatility is vital to sound interest rate risk management.
Modeling in...