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Management Framework for Non-Maturity Accounts: From the Marketing to the Hedging Strategy (Bloechlinger A.)

Basel I-III Structure of Assets&Liabilities

Abstract Demand deposits are cheaper and more stable than interbank funds and credit card loans yield excessive returns over bond investments, i.e., the marketing of non-maturity accounts by commercial banks generates added value over wholesale instruments. We propose a new approach in which the marketing strategy is transformed into the hedging strategy to produce stable net interest income and which allows an internal funds transfer pricing between asset/liability management and sales. Two different marketing strategies can require vastly different hedging strategies for the same underlying account. Pricing and customer behavior typically feature embedded options which we hedge in a dynamic yet cost-efficient manner.
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Libref/ Bloechlinger A. (2011) "Management Framework for Non-Maturity Accounts: From the Marketing to the Hedging Strategy", pp. 1 - 49
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