F2019, q19

edited October 2021 in OSFI.MCT

When we calculate the interest rate risk, must we always calculate a weighted duration of the assets and liabilities separately? For example, why cant we simply calculate the interest rate risk as:
(4x12300+3x7000)x0.0125-(1.5x8000+1.75x13500)x0.0125

The solution calculates the weighted duration for assets and liabilities first then multiplies this by their totals. The answer is very close in both approaches. But I'm wondering if my approach is correct?

Comments

  • Your solution is algebraically equivalent to the solution given in the examiner's report. If you got a slightly different answer, it's just rounding.

    I think the reason for the way it was done in the examiner's report was to explicitly show all the separate steps. (Of course, the denominators of 19,300 and 21,500 cancel out anyway so your solution was quicker.)

Sign In or Register to comment.