A Stochastic Optimization Model for the Investment of Savings Account Deposits
ISBN
3-540-64240-4
Type
conference paper
Date Issued
1997-09-03
Author(s)
Abstract
A bank's financial management faces various sources of uncertainty when funds from savings account deposits are invested in the marketplace. Future interest rates are unknown and customers are allowed to withdraw their deposits at any point in time. The objective is to find a portfolio of fixed income instruments that maximizes the bank's interest surplus from the investment of funds and to manage the prepayment risk inherent to non-maturing accounts. A multistage stochastic programming model is presented that takes into account the uncertain evolution of interest rates and volume. A case study based on interest rate data of a 7 years period indicates that the surplus can be increased by 25 basis points compared to the static approach formerly used, while volatility is reduced significantly.
Language
English
Keywords
Multistage Stochastic Programming
Asset & Liability Management
Non-Maturing Assets & Liabilities
Barycentric Approximation
HSG Classification
not classified
Refereed
No
Book title
Operations Research Proceedings 1997
Publisher
Springer-Verlag
Publisher place
Berlin, DE
Start page
382
End page
387
Pages
6
Event Title
Symposium on Operations Research (SOR'97)
Event Location
Jena, DE
Subject(s)
Division(s)
Eprints ID
7217
File(s)![Thumbnail Image]()
Name
SOR97E.pdf
Size
143.34 KB
Format
Adobe PDF
Checksum (MD5)
34b0ef962d1eec91bda15faddd481aaf