INTERTEMPORAL BANK ASSET CHOICE WITH STOCHASTIC DEPENDENCE

Abstract

The paper extends existing models of inter-temporal bank asset management in the following respects: (a) Bank customers are identified, with requirements that their demands for loan renewals be satisfied. Opportunities are provided for attracting new customers; (b) feedback relationships between loans and deposits are introduced; (c) costs of servicing loans with different degrees of risk are introduced explicitly; (d) future deposits and loan repayments are expressed as jointly dependent random variables; (e) the Federal Reserve Board's liquidity leverage suggestions are replaced by chance-constraints on meeting demands for loans. This leads to a policy of balancing maturities in the bond portfolio. The format of the model is that of chance- constrained programming, with piecewise linear approximations to the non-linear constraints. A 5-period example, with parameterizing on the right hand side, is presented.

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Document Details

Document Type
Technical Report
Publication Date
Apr 01, 1968
Accession Number
AD0672581

Entities

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  • Abraham Charnes
  • Stephen C. Littlechild

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  • Northwestern University

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