Fund Transfer Pricing for Bank Deposits. The Case of Products with Undefined Maturity

31 Pages Posted: 26 Jan 2016 Last revised: 19 Feb 2016

Date Written: January 26, 2016

Abstract

The paper presents a pedagogical yet rigorous analysis of fund transfer pricing for deposits with undefined maturity. The objective is to identify the conditions needed to convert the case of deposits with undefined maturity into one with a single effective maturity. This in turn allows us to identify the many circumstances under which the practice of conversion into a single effective maturity is not warranted. Attention is called to the context in which the choice of a maturity is made: pricing, evaluation of performance, and hedging of interest rate risk on deposits with undefined maturity.

Keywords: Banking, asset & liability management

JEL Classification: G21, G28

Suggested Citation

Dermine, Jean, Fund Transfer Pricing for Bank Deposits. The Case of Products with Undefined Maturity (January 26, 2016). INSEAD Working Paper No. 2016/06/FIN. Available at SSRN: https://ssrn.com/abstract=2722392 or http://dx.doi.org/10.2139/ssrn.2722392

Jean Dermine (Contact Author)

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 60 72 41 33 (Phone)

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