INTERTEMPORAL BANK ASSET CHOICE WITH STOCHASTIC DEPENDENCE
Systems research memo.
NORTHWESTERN UNIV EVANSTON IL TECHNOLOGICAL INST
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The paper extends existing models of inter-temporal bank asset management in the following respects a Bank customers are identified, with requirements that their demands for loan renewals be satisfied. Opportunities are provided for attracting new customers b feedback relationships between loans and deposits are introduced c costs of servicing loans with different degrees of risk are introduced explicitly d future deposits and loan repayments are expressed as jointly dependent random variables e the Federal Reserve Boards liquidity leverage suggestions are replaced by chance-constraints on meeting demands for loans. This leads to a policy of balancing maturities in the bond portfolio. The format of the model is that of chance- constrained programming, with piecewise linear approximations to the non-linear constraints. A 5-period example, with parameterizing on the right hand side, is presented.
- Economics and Cost Analysis
- Operations Research