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The Generation and Analysis of the Interest Rate Shock Scenarios Using DNS Model

  • Journal of Insurance and Finance
  • 2019, 30(2), pp.3-53
  • DOI : 10.23842/jif.2019.30.2.001
  • Publisher : Korea Insurance Research Institute
  • Research Area : Social Science > Business Management
  • Received : October 11, 2018
  • Accepted : May 16, 2019
  • Published : May 31, 2019

Tae HyeonWuk 1 Geonyoup Noh 2 Kim Byung-June 1 Jang Bong-Gyu 1 Kyoung Gook Park 3

1포항공과대학교
2보험개발원
3금융감독원

Accredited

ABSTRACT

We use the Dynamic Nelson-Siegel model (DNS) to simulate interest rate shocks and analyze how they affect the term structure of interest rates. We generate scenarios of the interest rate shocks following the suggestion of ICS: mean-reversion, level-up and down, twist-up and down shocks. Sensitivity analysis is also conducted on various parameter assumptions. We find that each scenario gives a various impact on the term structure. Therefore, it is necessary to cope with risk factors of interest rate shocks. Moreover, we analyze the difference in the interest rate shock scenarios between PCA and DNS. It will be necessary to select a model suitable for the domestic environment through various analyses and comparisons of interest rate risk models.

Citation status

* References for papers published after 2022 are currently being built.

This paper was written with support from the National Research Foundation of Korea.