Mastering Interest Rate Risk Strategy

Part 1

KEY LEARNING POINTS FROM PAST DERIVATIVES BLUNDERS

1. Corporate derivatives blunders

INTRODUCTION TO PART 1

In corporate interest rate risk management there are few natural ways to mitigate risk in comparison to foreign exchange risk management. In other words, in establishing an optimal strategy to manage interest rate risk the use of derivatives is quite common. With derivatives interest rate risk can be decreased, but also (unintentionally) increased.

In this section we’re going to look at derivatives blunders made by firms when they manage interest rate risk. The aim is to show you what can go wrong with derivatives so that you won’t make the same mistakes. I have analysed past derivatives blunders and have looked for the common ...