Friday, February 19, 2016

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

DERMINE Jean
Read the working paper
INSEAD Working Paper 2016/06/FIN


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.