Establishing the Liquidity Profile of Non-Maturity Demand Products

Vijayalakshmi Mulakalapalli

Chapter 14 in Business Analytics:Progress on Applications in Asia Pacific, 2016, pp 401-431 from World Scientific Publishing Co. Pte. Ltd.

Abstract: The Market Risk Management-Asset Liability team at OCBC wanted to develop an empirical methodology to establish the liquidity profile for non-maturity demand deposits. This study proposes to establish the weighted average maturity (WAM) and hence liquidity premium for non-maturity products in the OCBC commercial book. The existing methodology uses two different approaches based on balance trend while assuming normality to balance movements. Stochastic modeling of the historical balance data using Johnson distribution (to accommodate non-normality) and entropy optimization (to achieve global maxima) was used in the improved approach to correct these shortcomings. These two approaches, along with qualitative overlay for a few portfolios, form a robust alternative to the existing method.

Keywords: Business Analytics; Entrepreneurship; Big Data; Information Technology (search for similar items in EconPapers)
JEL-codes: L26 (search for similar items in EconPapers)
Date: 2016
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