Hedging interest rates

[free_money]

Financial Institutions are largely exposed to interest rate risk. How is this hedged? Obviously they can use forwards/futures but how do they exactly hedge their risk.
Ie. Do they look at bond yields to see if they are rising/falling and act upon that?
Is it also OTC or ETD or can be both I presume?

I would appreciate any help or if anyone can clarify this better.

Thank you very much

 

[Hotch]

Monte Carlo methods for option pricing - Wikipedia, the free encyclopedia

start here, although there are plenty of other ways of pricing options.

 

[egro1egro]

Bond yields have curvature and simply rising/falling doesn't describe the whole picture.

You can lock into a fixed rate by using forwards/futures/bonds/swaps/etc., you can cap it using options (caps/floors, bond options) or you can ignore it... Ah, you can also profit from it if you feel daredevil... You can issue equity and then not worry about re-financing costs. So, there are plenty of opportunities here...

Some of it is OTC some - not.

 

[gooseman]

pretty vague question...