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Trading interest rate risk in derivatives markets

Monika Piazzesi, Martin Schneider () and Juliane Begenau
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Monika Piazzesi: Stanford
Juliane Begenau: Stanford

No 1403, 2011 Meeting Papers from Society for Economic Dynamics

Abstract: This paper studies banks' motives for trading in interest rate derivatives. It uses data from annual reports and regulatory filings to measure major market participants' derivatives portfolios, as well as their non-derivative exposure to interest rate risk. Risk exposures with and without derivatives are compared using a term structure model. While some banks use swaps to offset maturity mismatch on their balance sheet, others appear to increase their exposure to interest rate shocks by speculating in derivatives.

Date: 2011
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More papers in 2011 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
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