Implications of GCF-based Derivatives Hedging For Bank Risk Management

Open Access
Author:
Fakelmann, Nicholas Robert
Area of Honors:
Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Louis Gattis Jr., Thesis Supervisor
  • James Alan Miles, Honors Advisor
  • Heber Farnsworth, Faculty Reader
Keywords:
  • Hedging
  • Interest Rates
  • Capital Markets
  • Finance
Abstract:
In the wake of the Barclays-LIBOR interest rate-rigging scandal, Federal Reserve Chairman Ben Bernanke suggested the practical use of repo rates in valuing derivatives, specifically the General Collateral Finance Repo Index. For large financial institutions, which actively hedge exposure via the money market, opportunities may exist in which GCF-based instruments can provide better strategies for hedging interest rate risk (IRR). In this thesis, I will conduct a comparative study of the GCF Repo rates with other interest rates that are suitable for hedging interest rate risk in banks. This study will examine the period of 2005 - 2013, the period for which GCF rate data is available.