Management of non-maturing deposits by multistage stochastic programming
Journal
European Journal of Operational Research (EJOR)
ISSN
0377-2217
ISSN-Digital
1872-6860
Type
journal article
Date Issued
2003-12-16
Author(s)
Abstract
The management of non-maturing account positions in a bank's balance like savings and sight deposits as well as certain types of variable-rate mortgages is complicated by the embedded options that its clients may exercise. In addition to the usual interest rate risk, uncertainty in the timing and amount of cash flows must be taken into account when investment or refinancing strategies are determined. This paper introduces a multistage stochastic programming model where the stochastic evolution of interest rates and volume under management is described by stochastic processes in discrete time. Scenarios are generated by means of barycentric approximation which is particularly useful to deal with the observed correlations between interest rates and volume. Practical experience from the application at a major Swiss bank is reported where the model has been employed since the mid-90s.
Language
English
Keywords
Multistage Stochastic Programming
Asset & Liability Management
Barycentric Approximation
Non-Maturing Assets & Liabilities
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Elsevier
Publisher place
Amsterdam
Volume
151
Number
3
Start page
602
End page
616
Pages
15
Subject(s)
Division(s)
Eprints ID
7087
File(s)![Thumbnail Image]()
open.access
Name
ejor3.pdf
Size
2.33 MB
Format
Adobe PDF
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