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A Quantitative Liquidity Model for Banks by Christian Schmaltz

By Christian Schmaltz

Internal liquidity versions for banks have received substantial significance on the grounds that German regulators have made up our minds to simply accept them for regulatory reporting. Christian Schmaltz identifies product funds flows, investment unfold, investment means, haircuts, and temporary rates of interest as key liquidity variables. Then, he assumes particular stochastic tactics for the main variables resulting in a specific liquidity version. The modelling concentration lies at the product money circulation that's defined through a jump-diffusion procedure. eventually, the writer applies the version to the allocation, inner pricing, and optimization of liquidity.

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647], [Saunders and Hugh, 2001, p. 127] and [Timothy W. Koch, 2000, p. 125]. , 2002, p. ]. 5 ’Self-Liquidation’ is a particular case of ’Shiftability’ where the liquidation value is prohibitively small and time to liquidation is maturity. 2 16 2 Liquidity Concepts In self-liquidation, only short-term securities are liquid. g. shares) are illiquid. 6 Shiftability decouples maturity and asset liquidity because assets can be liquidated before maturity. 7 In the following, we use ’liquidation’ for shiftability, as ’liquidation’ is commonly used for selling/pledging assets.

5. 12 The three sources might lead to an unpredictable liquidity need. In that case, depositors exercise their option and withdraw the liquidity. We assume that the need for liquidity is the only reason that triggers the exercise of credit lines. In contrast to credit lines, depositors are creditors to the bank. Thus, they might also exercise their option due to a credit/confidence trigger even if they do not need the liquidity. For saving deposits a third factor is likely to have an impact: the relative yield compared to alternative investments.

22]. , 2005]. 1 Asset Liquidity 17 Asset Liquidity in Liquidity Management In liquidity management, asset liquidity is measured by haircuts HC. 10 Haircuts can take any values between 0 and 1. Similar to delta haircuts are illiquidity measures as they take large values for less liquid and zero for perfectly liquid assets. Haircuts measure illiquidity in currency units, delta measures illiquidity as discount premium. Both measures are positive. Delta is not limited, whereas haircuts are limited at 1.

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