The Valuation and Hedging of Variable Rate Savings Accounts

Frank de Jong and Jacco Wielhouwer

ASTIN Bulletin, 2003, vol. 33, issue 2, 383-397

Abstract: Variable rate savings accounts have two main features. The interest rate paid on the account is variable and deposits can be invested and withdrawn at any time. However, customer behaviour is not fully rational and withdrawals of balances are often performed with a delay. This paper focuses on measuring the interest rate risk of variable rate savings accounts on a value basis (duration) and analyzes the problem how to hedge these accounts. In order to model the embedded options and the customer behaviour we implement a partial adjustment specification. The interest rate policy of the bank is described in an error-correction model.

Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:astinb:v:33:y:2003:i:02:p:383-397_01

Access Statistics for this article

More articles in ASTIN Bulletin from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().