A General Model of Pricing of Loan and Deposit Products by Commercial Bank Subject to Stochastic Lag In Returning Loans
Journal Title: Бізнес Інформ - Year 2016, Vol 7, Issue
Abstract
The article considers the issue of accounting for the possible delays in returning loans within the process of pricing the loan and deposit products of commercial bank. According to the complexity of this task, the literature commonly uses the more general indicator - credit risk, which does not give sufficient detail to account for the influence of lag when returning loans. Thus a general model has been built, which takes account of stochastic lag in returning loans and deposits. To this end, a number of model assumptions has been formulated, the mechanisms of return of loans and deposits have been disclosed and the choice of formula writing for them has been substantiated. Using such incoming and outgoing flows, based on the flow model, a general model for commercial bank has been proposed that provides to: consider the stochastic lag when returning loans and deposits; choose different demand functions for loans and deposit offerings; conduct simulations with a fixed delay (as a special case) and with a random delay; use different pricing criteria; find the best credit and deposit rates subject to lag in returning loans by means of numerical simulation.
Authors and Affiliations
Andrii Drozd, Vladimir Kapustyan
Keywords
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