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Behavioral modeling: Deposit volume dynamics are linked to market interest and
deposit rate movements. Clients respond to different financial and economic
environments. The goal is to have a better understanding and forecasting of deposit
volume evolution, for hedging and liquidity management.
Deposit Rate
Deposit Volume
Consequences: 1) Market rate above the deposit rate (JvD does not hold)
2) Risk remuneration (especially for non-guaranteed amounts)
3) Narrow margins imply riskier investment strategies
Where we define the CDS spread as the difference between the individual
CDS and a benchmark:
We can also include bank runs by assuming that for a high enough level of CDS,
people are going to panic and run to withdraw in mass. We can model through an
indicator function:
Using a cumulative distribution (in the fashion of Nystrom (2008) ) instead of the
indicator function we get:
CDS process
Economic value:
Replicating portfolios