Goal programming models for managing interest-rate risk

This paper develops two goal programming models (Forecast Model and Duration Model) to assist a bank in creating optimal strategies to manage interest-rate risk. The Forecast Model requires knowledge concerning the magnitude and direction of potential interest-rate shocks, and the Duration Model only needs information concerning the direction of this chock. The two models are shown to provide identical solutions for a plausible economic scenario. Because of its less restrictive information base, the Duration Model is concluded to be superior to the Forecast Model and other similarly constructed extant models.