Non-Maturing Assets and Liabilities of Banks: Valuation and Risk Measurement

40 Pages Posted: 24 Aug 2009  

Oliver Entrop

University of Passau

Arne Krombach

Catholic University of Eichstaett-Ingolstadt

Christoph Memmel

Deutsche Bundesbank

Marco Wilkens

University of Augsburg

Date Written: April 30, 2009

Abstract

Non-maturing banking products are important asset and liability positions of banks. Their complexity inter alia arises from a non-trivial pass-through from market to product rates which makes the valuation and risk analysis challenging for both banks and banking supervisors. Based on a large data set, this paper provides a comprehensive analysis of the valuation and interest rate risk measurement of these products in the risk-neutral valuation framework of Jarrow and van Deventer (1998). We apply 6 term structure models and 4 interest rate pass-through models and estimate for each of these 24 model combinations the value and interest rate risk of 13 non-maturing product categories for up to 400 German banks on an individual bank level. We find that the choice of the term structure and the pass-through model is of limited importance for the valuation of non-maturing banking products. For ranking banks according to the interest rate risk of their products the pass-through process is of specific relevance. When the level of the interest rate risk is to be estimated, additionally an advanced term structure model should be chosen.

Keywords: Interest rate risk, term structure model, interest rate pass-through, banking supervision, German financial institutions

JEL Classification: G13, G18, G21

Suggested Citation

Entrop, Oliver and Krombach, Arne and Memmel, Christoph and Wilkens, Marco, Non-Maturing Assets and Liabilities of Banks: Valuation and Risk Measurement (April 30, 2009). 22nd Australasian Finance and Banking Conference 2009. Available at SSRN: https://ssrn.com/abstract=1460185 or http://dx.doi.org/10.2139/ssrn.1460185

Oliver Entrop (Contact Author)

University of Passau ( email )

Innstrasse 27
Passau, 94032
Germany
+49 851 509 2460 (Phone)
+49 851 509 2462 (Fax)

Arne Krombach

Catholic University of Eichstaett-Ingolstadt

Auf der Schanz 49
Ingolstadt, D-85049
Germany
+49 841 937 1867 (Phone)

Christoph Memmel

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Marco Wilkens

University of Augsburg ( email )

Universitaetsstr. 16
Augsburg, 86159
Germany
+49 821 598 4124 (Phone)
+49 821 598 4223 (Fax)

HOME PAGE: http://www.wiwi.uni-augsburg.de/bwl/wilkens/team/wilkens_marco/

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