Download A Quantitative Liquidity Model for Banks by Christian Schmaltz PDF

By Christian Schmaltz

Internal liquidity types for banks have received enormous value for the reason that German regulators have determined to simply accept them for regulatory reporting. Christian Schmaltz identifies product money flows, investment unfold, investment skill, haircuts, and non permanent rates of interest as key liquidity variables. Then, he assumes particular stochastic tactics for the most important variables resulting in a specific liquidity version. The modelling concentration lies at the product money circulate that's defined by means of a jump-diffusion method. eventually, the writer applies the version to the allocation, inner pricing, and optimization of liquidity.

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The more account-based the economy, the higher the amount the bank can grant non-cash. The liquidity created by banks is in form of book money. 56]. The balance sheet of the Bundesbank can be found in the Annual Report (see [Deutsche Bundesbank, 2007, p. ]). The ECB’s main refinancing operation is a weekly repo (tender). See [European Central Bank, 2006, p. 8]. 5. 31 We introduce a real sphere endowment to separate the real and monetary sphere, and to keep the monetary sphere as simple as possible.

9 It can be interpreted as a premium that investors require to be compensated for transaction cost or valuation uncertainty. 1) being : CFsa : Future Cash Flows, asset a Lta : Liquidation Value, asset a r f (t, j) : Risk-free interest rate ca (t, j) : Credit Risk Premium, asset a δ a (t, j) : Illiquidity Premium, asset a, δ a (t, j) ≥ 0 The liquidation value (or market price) of asset a at time t is denoted Lta . It is the sum of all future cash flows discounted at the risk-free rate r f (t1 ,t2 ) plus the premium for credit risk inherent in asset a ca (t1 ,t2 ) and a premium for a’s potential future illiquidity δ a (t1 ,t2 ).

An asset can be liquidated by two mechanisms:4 1. 5 Self-liquidation does not involve cost. 2. Shiftability Prior to maturity, an asset can be liquidated by sale or pledging. Shiftability usually involves liquidation cost. 1 See [Persaud, 2003, p. 86] and [Issing, 2001, p. 169]. See [Reimund, 2003, p. ],[K¨ornert, 1998, p. 66], [Issing, 2001, p. , 2002, p. 880]. The latter lists ’International liquidity’ as a separate liquidity category. 3 See inter alia [Brunner, 1996, p. , 2002, p. 880], [Mankiw, 2001, p.

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