Abstract: By the method of no-arbitrage analysis and binary tree,the value of embedded surrender option is priced.And with the numerical method,the model for interest rate term structure in Chinese market is ascertained in the form of cubic polynomial. According to the above,the absolute immunity model of duration gap is set up against interest rate risk. Finally,the model is applied with the actual data of asset and liability.

Key words: ALM, interest rate risk, absolute immunity model, surrender option, binary tree