Modeling Non-Maturing Deposits: A Procedure for the Determination of the Minimal Time Series Length Required for Model Calibration and Back-Testing

17 Pages Posted: 10 May 2021

See all articles by Sophie Döpp

Sophie Döpp

University of Hamburg - Faculty of Economics and Business Administration

Andre Horovitz

affiliation not provided to SSRN

Alexander Szimayer

University of Hamburg - Faculty of Economics and Business Administration

Date Written: March 31, 2021

Abstract

This paper proposes a procedure for the determination of the minimal length of the historical time series of daily deposit variations in accordance with an institution’s specific risk tolerance. In a previously released paper we developed a methodology to ascertain an institutional specific confidence level to be used for the same purposes. As the formula for the determination of the confidence level depends on the length of the deposit variations time series, we complete the procedural construct by proposing a means to estimating the minimal length of the daily deposit volume variations vector in accordance with Principle 9 of the EBA recommendations for liquidity risk management best practices. As the formula determining the minimal length of the volume time series will depend on the institutional specific confidence level to be used (as described in the previous paper), we will augment our procedure with a recursive method which converges to optimal values for both parameters. The procedure centers on the identification of structural breaks in the volume dynamics distributions. The resulting vectors of constant maturities are identified via distributional power statistical tests. We further illustrate the application of the proposed procedure using a dataset of daily demand deposit volumes from a fictional European savings bank.

Keywords: Core deposit volumes, Liquidity risk, Minimal time series length

JEL Classification: G32, G21

Suggested Citation

Döpp, Sophie and Horovitz, Andre and Szimayer, Alexander, Modeling Non-Maturing Deposits: A Procedure for the Determination of the Minimal Time Series Length Required for Model Calibration and Back-Testing (March 31, 2021). Available at SSRN: https://ssrn.com/abstract=3839329 or http://dx.doi.org/10.2139/ssrn.3839329

Sophie Döpp (Contact Author)

University of Hamburg - Faculty of Economics and Business Administration ( email )

Von-Melle-Park 5
Hamburg, 20146
Germany

Andre Horovitz

affiliation not provided to SSRN

Alexander Szimayer

University of Hamburg - Faculty of Economics and Business Administration ( email )

Von-Melle-Park 5
Hamburg, 20146
Germany

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