BANKING AND THE ADVANTAGE OF HEDGING

Udo Broll () and Jack Wahl
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Udo Broll: Department of Business and Economics, University of Technology, Dresden, 01062 Dresden, Germany
Jack Wahl: Department of Business, Dortmund University, 44221 Dortmund, Germany

Annals of Financial Economics (AFE), 2006, vol. 02, issue 01, 1-11

Abstract: In this paper, we study how a competitive banking firm can use a variable deposit rate to insure against profit risk from risky assets and how the utility of the bank manager is affected by this kind of risk management policy. Furthermore, we study the advantage of a risk management policy which is based on financial hedging. Finally, we answer the question which of these risk management policies the bank manager prefers.

Keywords: Banking firm; risky assets; variable deposit rate; risk sharing; hedging; bank margin; asset liability management; G21 (search for similar items in EconPapers)
Date: 2006
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DOI: 10.1142/S2010495206500023

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