You may be missing the point. The purpose of interest rate risk is to
determine the additional capital required from interest rate changes from
RBC values (risk based capital requirements). In RBC charges, liabilities
are discounted at a mandatory 5% rate. Thus, if interest rates shift from
7% to 8%, you want to consider 1) the change in asset values from 7% to 8%
(since assets can be valued at market rates in RBC) and 2) the change in
liability values from 5% (the mandatory value) to 8%, the new value. This
is not a mismatch.
So yes, if market rates went from 20% to 22%, you do want to consider a 2%
change in assets vs. a 17% change in liabilities.
Hope this helps.
John Gleba
madisoninc@mindspring.com
706-342-7750
At 09:40 AM 4/30/99 -0400, you wrote:
>
>
>Ok--I've reached page 30 of 99-10-20B--the last two pages of the last
>Feldblum study note...and I have a problem I don't understand.
>
>The simplified "Exhibit 3", shows assets at a book value using a 1.05 and a
> shocked value of 1.07 but the assets go 1.06 to 1.07.
>
>Can anyone explain the logic here or is this simply an error? It seems like
> you're trying to demonstrate a 100 bp swing (based on the assets) but on
>the liab side you're starting with the 1.05 value (from RBC I guess). It
>doesn't seem to be a fair comparison.
>
>If market rates went from 20 to 22%, for example you wouldn't want to
>compare a 2 point change in assets with a 17 point change in liabs, right?
>
>Am I totally missing the point? Thanks
>
>
>