Abstract
The banks will be faced with a different interest rate risk as long as trading bonds, Interest rate risk is one of the bank's major financial risk,since there is lots of determinants of the interest rate variation, It is hard to forecast the interest rate variation, how to control interest rate risk is a important work for bank’s day-to-day management,it is important that how to prevent and solve interest rate risk. If we can estimate the VaR(Value at Risk), we can prepare the capital for the expected loss,but without loss function, we can’t estimate the VaR, loss function is a basic tools for risk quantification. The purpose of this paper is how to fit the yield curve, and estimate the loss for investing in bonds, we’ll fit the yield curve by Nelson and Siegel ‘ s three factor model and four factor model，and estimate model’s parameter by Diebold-Li(2006), then we simulate the bond’s loss function, then calculate the VaR and campare with the Historical Simulation Method.