A Quantitative Liquidity Model for Banks by Christian Schmaltz

By Christian Schmaltz

Internal liquidity versions for banks have won huge value for the reason that German regulators have made up our minds to simply accept them for regulatory reporting. Christian Schmaltz identifies product money flows, investment unfold, investment means, haircuts, and non permanent rates of interest as key liquidity variables. Then, he assumes particular stochastic strategies for the main variables resulting in a specific liquidity version. The modelling concentration lies at the product money movement that's defined via a jump-diffusion method. eventually, the writer applies the version to the allocation, inner pricing, and optimization of liquidity.

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2006] find evidence that current credit spread slopes can predict future forward credit spread levels. , 2004] confirms that a steep slope predicts increasing credit spreads. Hence, these studies suggest that firms cannot save on funding cost by choosing short-term debt, as the current funding advantage will be absorbed by higher future funding spreads. We are not aware of studies that documented the success of Maturity Mismatch Strategies. 2 Liquidity Strategies of Banks 37 Fig. 1) indicates that the funding capacity is stochastic.

In a first step we determine why global optimization can be split up into department-wise optimization. Subsequently, we set up the local optimization programmes and solve them. Chapter 7 concludes and offers an outlook for further research. Chapter 2 Liquidity Concepts Liquidity is a term with distinct but related meanings depending on the context. 1 Because of this, it is necessary to de- and refine what we understand by liquidity. The literature distinguishes three liquidity concepts:2 1. Asset Liquidity 2.

From a P&L-perspective, the bank loses both security and funding. Hence, it renounces on the security benefits and saves funding costs. Unsecured Funding For unsecured funding, the liquidity impact is the notional amount of the funding gap. From a P&L-perspective, unsecured funding requires a higher credit spread than secured funding (repo), as the unsecured lender bears the default risk of the bank and not that of collateral. As the bank keeps its securities, it continues to enjoy the benefits (and risk) of them.

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