By Christian Schmaltz
Internal liquidity versions for banks have won huge value on account 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 methods for the foremost variables resulting in a selected liquidity version. The modelling concentration lies at the product funds movement that's defined by means of a jump-diffusion approach. eventually, the writer applies the version to the allocation, inner pricing, and optimization of liquidity.
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Extra info for A Quantitative Liquidity Model for Banks
21 Clearly, if assets are worth less than liabilities, the institution is insolvent. If there is a payment obligation and assets are liquid, the payment obligation can be honoured; hence, the institution is not illiquid. If assets value more than liabilities on a going-concern per15 s. [Saunders and Hugh, 2001, p. 113], [Reimund, 2003, p. , 2002, p. ], [K¨ ornert, 1998, p. 66]. For a legal deﬁnition, see [German Bankruptcy Code, 1995, Paragraph 17]. 1). 5 describes and compares repo and sale. ].
18]. 38 3 Liquidity Framework Fig. 11 Exemplary Balance Sheet for a Liquidity Option Strategy Fig. 12 Maturity Ladder Fig. 12. In contrast to the Maturity Mismatch Strategy, the Liquidity Option Strategy involves stochastic cash ﬂows. Therefore, the maturity ladder shows expected cash ﬂows. Banks provide liquidity options because they yield a comfortable margin. 27 27 Bundesbank stopped data collection in 2002. The margins are obtained as the difference between the corresponding ONand 3M-Money Market rates as reported by Frankfurt Banks.
105]) that is an integral component of the Annual Financial Report is not a cash ﬂow maturity ladder. It shows the structure of cash and cash equivalents and their changes during the reporting period, and indicates the free cash available for investments or shareholders. As Commerzbank states: As far as banks are concerned, the cash ﬂow statement can be considered not very informative. For us, the cash ﬂow statement does not replaces liquidity planning or ﬁnancial planning, and we do not look upon it as a management tool.
A Quantitative Liquidity Model for Banks by Christian Schmaltz