Advice & Resources

We question the conceptual foundations of  so-called “Beta Rate” models and related “Beta Factors” applied to non-maturity deposits. We conclude that: * Beta models of NMD rates are simplistic * They are neither analytically robust, nor stable * They produce inconsistent results that depend on whether interest rates are rising or falling *  They are […]

We examine the issues inherent in common approaches to deposit model estimation and rate path simulation for risk management. We examine results of econometric methodologies applied to historical data against various approaches using simultaneous simulation using the SOLVER tool. We demonstrate that models derived using SOLVER methodologies are both persistent (durable) over long time series […]

We examine current approaches  simulating deposit rates for risk modeling using product models estimated from historical data using classic econometric methodologies. In particular, we consider the origins of cumulative drift in rates simulated by models highly correlated to history, and the incidence of crossing rate paths clustering at points of market inflection. Download Whitepaper – […]

We examine nearly two decades of bank deposit pricing history and confirm the evidence of tiered pricing and cross-product constraints persistent across all rate cycles. On Deposit Rates – I

Part I discusses the textbook definition of effective duration applicable to core deposits (“Bank Asset-Liability Management Newsletter”, June 2006, p. 7) Part II presents a simplified rate model to capture several key aspects of bank pricing behavior. One of the four standard rate parameters is  shown to dominate the others.   A Primer On Core […]

A simplified framework for understanding the sensitivity of duration estimates to assumptions, and assessing their reasonableness. A Primer on Core Deposit Duration – V.3

Managing  interest-rate risk associated with long-lived, non-tradeable assets and liabilities accounted for on an accrual basis. Measuring Interest Rate Risk – Earnings & EVE  

A Simple Technique to Visualize the Properties of Stochastic Interest Rates “Bank Asset-Liability Management” Newsletter Visualizing Properties of Stochastic Interest Rates

Using FSI (AFT) Tools to Validate Components of Interest Rate Risk Models IRR Model Validation Using FSI (AFT) Tools

Modeling Rate Model Relaxation Response to Achieve Equilibrium Pricing Administered Rate Pricing