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I am new to risk modelling in bank and I have a question about the Principles for the Management and Supervision of Interest Rate Risk of BCBS.
The document can be found here: http://www.bis.org/publ/bcbs108.htm
In annex 4, in the calculation process, they divide assets and liabilities into time bands and then offset each time band. And then weighting each time band with a factor. These factors are based on the assumed parallel shift of 200 basis points throughout the spectrum, and on a proxy of modified duration of positions situated at the middle of each time band and yielding 5%.
I wonder how they come up with the table of weighting factor. Is there anyone happen to know the answer? Thanks for your help
The document can be found here: http://www.bis.org/publ/bcbs108.htm
In annex 4, in the calculation process, they divide assets and liabilities into time bands and then offset each time band. And then weighting each time band with a factor. These factors are based on the assumed parallel shift of 200 basis points throughout the spectrum, and on a proxy of modified duration of positions situated at the middle of each time band and yielding 5%.
I wonder how they come up with the table of weighting factor. Is there anyone happen to know the answer? Thanks for your help