The Review of Asset Pricing Studies 2026
Measuring Interest Rate Risk Management by Financial Institutions
Abstract
Financial institutions manage myriad sources of interest rate risk. We propose a new method to measure financial institutions’ residual interest rate risk using high-frequency financial market data. We provide theoretical justification for the method using a model of life insurance companies with endogenous interest rate risk management. Applying the method to U.S. insurers, we find that their interest rate risk management strategies are generally effective. Analyzing a panel of insurers confirms a key theoretical prediction: The effectiveness of interest rate risk management depends, in part, on the ability to create net worth.
- DOI
- 10.1093/rapstu/raag009
- Language
- en
- Sources
- crossref