Measuring Interest Rate Risk Management by Financial Institutions

Celso Brunetti, Nathan Foley-Fisher and Stephane Verani

No 2023-067, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Financial intermediaries manage myriad interest rate risk exposures. We propose a new method to measure financial intermediaries' residual interest rate risk using high-frequency financial market data. Our method exploits all available high-frequency information and is valid under extremely weak assumptions. Applying the method to U.S. life insurers, we find their interest rate risk management strategies are generally effective. However, life insurers are more sensitive to changes in long-term interest rates than property and casualty insurers. We show that the term premium helps to explain the difference in sensitivities between the two types of insurer.

Keywords: Financial institutions; Interest rate risk management; High-frequency financial econometrics; Subsampling; Life insurers (search for similar items in EconPapers)
JEL-codes: C58 G20 (search for similar items in EconPapers)
Pages: 68 p.
Date: 2023-10-12
New Economics Papers: this item is included in nep-ban, nep-ifn and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2023-67

DOI: 10.17016/FEDS.2023.067

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