Management of Non-Maturing Deposits by Multistage Stochastic Programming

Classic 'non-maturing accounts' like savings or variable-rate mortgages can represent a significant percentage in a banks? balance. The risk management of these accounts is complicated by the embedded withdrawal options that may be exercised by account holders. In cooperation with a leading Swiss bank, a multistage stochastic optimization model has been developed which transforms a non-maturing account position into a combination of standard fixed-income instruments. The implementation of this model led to a software package applicable for a periodic decision making: minimization of refinancing costs or, vice versa, maximization of reinvestment incomes given an initial non-maturing account position).