Mastering Interest Rate Risk Strategy

Part 5

SELECTING THE BEST POSSIBLE DERIVATIVE

7. Interest rate derivatives

8. Linear derivatives

9. Options

INTRODUCTION TO PART 5

Part 5 will examine which derivatives a firm can use to mitigate the effects of interest rate risk on the firm.

Part 5 is the final stage in a firm’s interest rate risk management process and builds on the creation of firm value discussed in Part 4: only if hedging makes sense should a firm look at the best possible derivative to mitigate interest rate risk.

Once a firm is exposed to interest rate risk, there are few ways to manage it other than by using derivatives. Part 5 will show you what derivatives a firm can use and how they work. But, even more importantly, I’ll also point out exactly where the firm ...