Managing interest rate risk for non-maturity deposits
Marije Elkenbracht and Bert-Jan Nauta introduce two dynamic hedge strategies to stabilise the margin between investment return and client coupon. As extensions of Jarrow & van Deventer's model, these strategies can be used for both interest rate risk management and funds transfer pricing
An important goal in modelling non-maturity deposits1 is to find an investment strategy that stabilises the margin independently of interest rate movements. Sales departments prefer a stable margin to help them project and manage their income accurately.
The commonly used replicating portfolio model targets stabilising margins. However, this model contains a static investment rule that does not
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