A multi-period bank portfolio management program |
| |
Institution: | 1. University of Pittsburgh, Pittsburgh, PA 15260, U.S.A.;2. Bell Laboratories, Holmdel, NJ 07733, U.S.A.;3. State University of New York, Albany, New York, U.S.A. |
| |
Abstract: | We describe a bank portfolio management program based on the complete Markowitz model, which explicitly treats risk due to unanticipated fluctuations in interest rate. Our program takes into account both inter-temporal and intra-temporal covariance. The major result of this approach is that, for the same expected return, our model yields a portfolio with significantly smaller risk than that determined by an index model. For the same risk level, our method yields a portfolio with higher expected yield. The model employs a rolling planning horizon, with time periods in the planning horizon of arbitrary length. A novelty in the model is that it permits inter-temporal transactions in the portfolio's securities by generating dummy securities to represent every possible transaction over the planning horizon. The output from the model consists of a list of portfolio strategies showing the expected after-tax return and the 1% worst case yield for each strategy. We also present an illustrative example, using real data from a large Pennsylvania bank, and compare the results from our model to the simpler variance-only and index models. The principles upon which the model is based are sufficiently general to allow the program to be expanded into a general asset-liability balance sheet management program. |
| |
Keywords: | |
本文献已被 ScienceDirect 等数据库收录! |
|