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Dynamic Replication of Non-Maturing Assets and Liabilities

Non-maturing assets and liabilities (NoMALs) are those positions in a bank's balance that have no contractual maturity such as traditional savings deposits. For the calculation of transfer prices and the quantification of interest rate risk, a fix maturity profile must be assigned to a NoMAL position. Usually a replicating portfolio of fixed-income instruments with constant weights is determined from historical data whose cash flows match those of the underlying position. As an alternative, a multistage stochastic programming model is proposed where the replicating portfolio is derived from representative scenarios of the relevant risk factors (market rates, client rate, volume). Moreover, the portfolio composition is frequently readjusted using the current information about market rates and changes in volume. Compared to the traditional static method, practical experience shows that the margin of NoMALs can be significantly increased at reduced volatility by such a dynamic approach.
   
type conference paper (English)
   
keywords Asset & Liability Management, Non-Maturing Assets and Liabilities, Multistage Stochastic Programming, Interest Rate Risk Management, Liquidity Risk
   
project Development of ALM tool for non-maturing accounts
name of conference Operations Research 2005 (Bremen)
date of conference 7-9-2005
title of proceedings Operations Research Proceedings 2005
page(s) 217-222
publisher Springer (Berlin)
ISSN 0721-5924
ISBN 3-540-32537-9
review blind review
   
citation Schürle, M. (2005). Dynamic Replication of Non-Maturing Assets and Liabilities. In Operations Research Proceedings 2005, pp.217-222. Berlin: Springer. - ISBN 3-540-32537-9.