*Tid:* **30 juni 2011 kl 10.15-11.00.** (Observera dagen och
tiden)
**Seminarierummet 3733**, Institutionen för
matematik, KTH, Lindstedts väg 25, plan 7.
Karta!
*Föredragshållare:*
**
Helena Von Feilitzen
**
**Titel:**
Modeling Non-maturing Liabilities
(Examensarbete - Master thesis)
**Abstract**
Non-maturing liabilities, such as savings accounts, lack both predetermined
maturity and
reset dates due to the fact that the depositor is free to withdraw funds at
any time and that
the depository institution is free to change the rate. These attributes
complicate the risk
management of such products and no standardized solution exists. The problem
is
important however since non-maturing liabilities typically make up a
considerable part of
the funding of a bank. In this report different modeling approaches to the
risk management
are described and a method for managing the interest rate risk is implemented.
It is a
replicating portfolio approach used to approximate the non-maturing
liabilities with a
portfolio of fixed income instruments. The search for a replicating portfolio
is formulated as
an optimization problem based on regression between the deposit rate and
market rates
separated by a fixed margin. In the report two different optimization
criteria are compared
for the replicating portfolio, minimizing the standard deviation of the
margin versus
maximizing the risk-adjusted margin represented by the Sharpe ratio, of which
the latter is
found to yield superior results. The choice of historical sample interval
over which the
portfolio is optimized seems to have a rather big impact on the outcome but
recalculating
the portfolio weights at regular intervals is found to stabilize the results
somewhat. All in all,
despite the fact that this type of method cannot fully capture the most
advanced dynamics
of the non-maturing liabilities, a replicating portfolio still appears to
be a feasible approach
for the interest risk management.
The full report (pdf)
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