Due to convexity problems,banks are actually better off using the simpler repricing model to manage interest rate risk rather than the duration model.

Question

Quizplus · Accepted Answer

The duration model is preferred for managing interest rate risk because it accounts for the timing of cash flows and changes in interest rates more accurately than the simpler repricing model, which can lead to better risk management despite the complexity.

Due to Convexity Problems,banks Are Actually Better Off Using the Simpler