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Stochastic Optimization in Asset & Liability Management: A Model for Non-Maturing Accounts

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Probabilistic Constrained Optimization

Part of the book series: Nonconvex Optimization and Its Applications ((NOIA,volume 49))

Abstract

A multistage stochastic optimization model for the management of non-maturing account positions like savings deposits and variable-rate mortgages is introduced which takes the risks induced by uncertain future interest rates and customer behavior into account. Stochastic factors are discretized using the barycentric approximation technique. This generates two scenario trees whose associated deterministic equivalent programs provide exact upper and lower bounds to the original problem. Practical experience from the application in a major Swiss bank is reported.

Research for this paper was supported by the Swiss National Science Foundation, Grant No. 21-39′575.93.

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Authors and Affiliations

  1. Institute of Operations Research, University of St. Gallen, St. Gallen, Switzerland

    Karl Frauendorfer & Michael Schürle

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  1. Karl Frauendorfer
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  2. Michael Schürle
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  1. University of Florida, Gainesville, Florida, USA

    Stanislav P. Uryasev

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Frauendorfer, K., Schürle, M. (2000). Stochastic Optimization in Asset & Liability Management: A Model for Non-Maturing Accounts. In: Uryasev, S.P. (eds) Probabilistic Constrained Optimization. Nonconvex Optimization and Its Applications, vol 49. Springer, Boston, MA. https://doi.org/10.1007/978-1-4757-3150-7_4

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  • DOI: https://doi.org/10.1007/978-1-4757-3150-7_4

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