This paper derives a two-factor model for the term structure of interest rates that segments the yield curve in a natural way. The first factor involves modelling a non-negative short rate process that primarily determines the early part of the yield curve and is obtained as a truncated Gaussian...

Maturity transformation coupled with open foreign exchange positions expose financial intermediaries to unexpected changes in interest and exchange rates. This paper proposes to measure the degree of banks exposure to market risks by taking the variance of the total differential of the bank...