Optimal Pricing of the Credit and Deposit Products of Commercial Bank
Journal Title: Бізнес Інформ - Year 2015, Vol 5, Issue 0
Abstract
The article considers the process of determining the optimal credit and deposit rates of commercial bank that maximizes the capital of bank at the end of the period of management. To accomplish this task, a bank model was used, in which the deposits and credits are presented as cash flows, depending on the credit and deposit rates respectively. A brief description of the model together with a list of assumptions on which it is based was provided. On the basis of the above model, the task of maximizing the capital upon condition of control over the credit and deposit rates was given. To accomplish this task, numerical simulation was carried out using the method of coordinate-wise convergence. It has been found that the optimal credit and deposit rates depend on the bank's capital at the beginning of the period of management as well as on the function parameters in terms of demand for credits and supply for deposits. The higher is the bank's capital management at the beginning of the period of management, the smaller are the optimal credit and deposit rates, however, starting with some level of the capital and above, the optimal rates stay not reduced. The optimal rates will be also decreasing over time as capital increase grows up to a specified level. Consequently, the amount of attracted deposits decreases and the volume of issued credits increases up to a certain level.
Authors and Affiliations
Andrii Drozd
Keywords
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