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Non-maturing Deposits, Convexity and Timing Adjustments

  • Oliver Entrop
  • Marco Wilkens
Conference paper
Part of the Operations Research Proceedings book series (ORP, volume 2007)

Abstract

One key driver of a bank’s total interest rate risk is the position of non-maturing deposits. Several papers such as [6], [8], and [7] value non-maturing deposits in an arbitrage-free framework and analyze their risk profile. All these models consist of three major components: first, the short rate process, i.e. the dynamics of the default-free interest rate term structure; second, the interest rate pass-through, i.e. the link between the development of the deposit rates and the development of default-free interest rates, in general the short rate; third, the development of the deposit volume over time. In this paper, we concentrate on the interest rate pass-through. We provide some term structure model-free results on the valuation of deposits, when the deposit rates are linearly linked to some long-term swap rate (rather than a short-term interest rate) as the reference rate with an unnatural time lag.

Keywords

Interest Rate Deposit Rate Term Structure Spot Rate Short Rate 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2008

Authors and Affiliations

  • Oliver Entrop
    • 1
  • Marco Wilkens
    • 1
  1. 1.Catholic University of Eichstätt-IngolstadtIngolstadt

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