Asset Liability Management for Banks

Giandomenico, Rossano (2008): Asset Liability Management for Banks.

Abstract

The model, by using a contingent claim approach, determines the fair value of the banks liabilities accounting for the protection and the surrender possibility. Furthermore, it determines the implied duration of banks liabilities so to show that the surrender possibility will reduce the effective duration of banks liabilities. Implications for the immunization are also treated.

• Item Type: MPRA Paper
• Language: English
• Keywords: Contingent Claim, Duration
• Subjects: G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing ; Futures Pricing; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

References

Bjòrk, T. : Arbitrage Theory in Continuous Time Oxford University Press, 1998

Black, F., Scholes, M. : The Pricing of Options and Corporate Liabilities Journal of Political Economy, pag.637-659, 1973

Geske, R. : The Valuation of Compound Options Journal of Financial Economics,Vol.7, pag. 63-81, 1979

Geske, R., Johnson, H.E. : The American Put Option Valued Analytically The Journal of Finance, Vol. 39, n° 5, Dec. 1984

Giandomenico, R. : Asset Liability Management in Insurance Company Social Science Research Network, 2006

Giandomenico, R. : Pricing of the Policy Life in Absence of Default-Risk and Asset Liability Management Social Science Research Network, 2006

Giandomenico, R. : Valuing an American Put Option Social Science Research Network, 2006

Giandomenico, R. : Martingale Model Social Science Research Network, 2006

Giraldi, C., Susino, G. : Insurance Optional Risk, April 2000

Heath, D., Jarrow, R., Morton. A. : Bond Pricing and the Term Structure of Interest Rates: a New Methodology for Contingent Claims Valuation Econometrica, 60(1), pag. 77-105, 1992

Louis Bachelier Theory of Speculation (1900) Cootner: The Random Character of Stock Market Prices Cambridge, Mass, MIT. , 1964

Macaulay, F. R. : Some Theoretical Problems Suggested by the Movements of Interest Rates National Bureau of Economic Research, New York, 1938

Merton, R. : The Theory of Rational Option Pricing Bell Journal of Economics and Management Science, pag.141-183, 1973b

Merton, R. : On the Pricing of Corporate Debt: The Risk Structure of Interest Rate The Journal of Finance, Vol. 29, pag. 449-470

Merton, R. : On the Mathematics and Economics Assumptions of Continuous-Time Models Massachusetts Institute of Technology, 1982

Redington, F. M. : Review of the Principles of Life Office Valuations Journal of the Institute of Actuaries, 1952 Vol. 78, part. 3, n°350, pag.286-340

Vasicek, O. : An Equilibrium Characterization of the Term Structure Journal of Financial Economics, pag.177-188, 1977