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Tag Archives: Liquidity Risk

Stop loss limits review triggers - volatility, breaches, capital, profitability, liquidity

Liquidity Risk Management – A framework for estimating liquidity risk capital for a bank

Capital estimation for Liquidity Risk Management is a difficult exercise. It comes up as part of the internal liquidity risk management process as well as the internal capital adequacy assessment process (ICAAP). This post and the liquidity risk management series that follows suggests a framework for ongoing discussion based on the work done by our team with a number of regional banking customers

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Interest Rate Risk: Duration, Macaulay Duration and Modified Duration

Duration is a measure of how rapidly the prices of interest sensitive securities change as the rate of interest changes (see application example in the ALM section). For example, if the duration of a security works out to 2 this means that for a 1% increase in interest rates the price of the instrument will decrease by 2%. Similarly, if the interest rates were to decrease by 1% the price of the security would increase by 2%.

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