A Multi-Factor Model for the Valuation and Risk Management of Demand Deposits

Hans Dewachter, Marco Lyrio, Stan Maes
2006 Social Science Research Network  
MOTIVATION (i) "Duration" (IRE) of demand deposit accounts | Important for ALM and bank supervisors | Complex product: interaction between bank and depositor behavior, no deep liquid market, regulation, retail product, etc. | Standing challenge: no model consensus (RP models, DCF models) | IAS 39 hedge accounting rules $ banks'risk management (ii) "Economic value" of demand deposit accounts | "Full fair value" model is on the research agenda of IASB and FASB. | Link to ongoing insurance product
more » ... valuation discussions ) Paper presents a no-arbitrage multifactor DCF valuation model for demand deposits: | Reliable measurement of the (economic) deposit liability value? Determinants? | Yield curve sensitivity (wrt level and slope) of deposit liability value?
doi:10.2139/ssrn.795307 fatcat:kkfckkcxdrcfzjltwopihozdnq