Funding arbitrages and optimal funding policy
Stochastic control can be used to manage a bank’s net asset income
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Stefano Iabichino introduces the application of stochastic optimal control to a bank’s net interest rate income. In his study, he delineates the optimal fund transfer policy, identifies the optimal leverage ratio and introduces the concept of elastic rates. He concludes by bringing a nuanced observation to the fore: prevailing fund transfer practices may unwittingly
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