Our thesis, entitled “Valuating transformation through net interest margin and asset-liability matching: the case of CFM”, proposes the optimization of the risk-adjusted performance of transformation thanks to interest risk management. The goal of our thesis is to evaluate the transformation in banking, and more particularly in Crédit Foncier of Monaco (CFM), which is a private bank and a subsidiary of Calyon, investment banking of Crédit Agricole. The transformation of deposits into loans is the core business of banking because this process generates a net interest margin in the profit and loss statement (P&L) but engenders financial risks reflected by the asset-liability mismatches in the balance-sheet (B/S).
[...] The sensitivity of the net interest margin to interest rate variations is followed by Earnings At Risk MacAulay duration, Net Present Value (NPV) but also more complex models such as Nelson-Ziegel or Monte Carlo simulation for scenario analysis. Obviously, it is necessary to use the discounted cash flows and the Capital Asset Pricing Model (CAPM) for valuation Empirical background The indexation of outstanding rates on market rate is based on the correlation analysis and the variance covariance matrix. Indeed, the outstanding rates are numerous and their correlation with market rates is imperfect. [...]
[...] In the end, it is interesting to elaborate a new model, to implement it in Excel, to test its robustness on real data and to summarize the main results EXPECTED FINDINGS My thesis shall be divided into two main sections: the theoretical elaboration and the empirical application Theoretical finding We shall expect to conceive a new model to measure and manage interest rate risk in order to evaluate transformation Empirical finding When we apply this model in the Crédit Foncier of Monaco, we shall expect to find variances between optimal and actual results Review of the literature The related research in the literature includes books, thesis, studies and papers, in English or in French Books Mishkin Economics of money, banking and financial markets Augros & Quéruel Risque de taux d'intérêt et gestion bancaire Bessis Gestion des risques et gestion actif-passif des banques Artus & Lubochinski Théorie Financière Des Taux D'intérêt Et Gestion Du Risque De Taux Gup & Brooks Interest Risk management La Baume Gestion du risque d'intérêt Minguet Les techniques de gestion du risque d'intérêt Platt Controlling interest rate risk Thesis Soro La gestion des risques de taux d'intérêt et de change par l'approche ALM: le cas de la Banque Ouest Africaine de Développement (BOAD) Paillier Marge d'intérêt et risque de taux de la Caisse d'épargne du Limousin : une modélisation en termes de choix de portefeuille Studies Banque de France La gestion du risque de taux d'intérêt global dans les banques françaises: à l'heure de [...]
[...] In addition to that, I will soon work as a financial auditor specialized in banking industry, where transformation process is the main activity and risk management is the key issue Theoretical background First, the optimization requires the efficient frontier analysis to obtain the optimal balance-sheet structure, and utility modelling to take into account the absolute and relative risk aversion of banks. Treynor ratio is a good indicator because it adjusts return to risk. Then, the measure of risks is realized thanks to volatility, Value at Risk (VaR) and Computing Value at Risk (CVaR), downside risk, skewness or kurtosis. [...]
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