Maturity Intermediation and Intertemporal Lending Policies of Financial Intermediaries
AbstractThe maturity mismatch problem faced by a risk-averse financial intermediary is modeled by dynamic programming with both fixed-rate, short-term, and variable-rate, long-term lending when the major source of risk in volves uncertain interest rates. The strategy of matching the maturit y of assets and liabilities is not generally optimum or even risk min imizing. This is due to the "built-in" hedge which the intermediary may have as a result of rolling over short-term loans while continui ng to finance long-term loans. Intertemporal dependencies in loan dem and or funding costs affect the optimal degree of maturity mismatchin g. Copyright 1987 by American Finance Association.
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Bibliographic InfoArticle provided by American Finance Association in its journal Journal of Finance.
Volume (Year): 42 (1987)
Issue (Month): 4 (September)
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- Hunter, William C. & Smith, Stephen D., 2002. "Risk management in the global economy: A review essay," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 205-221, March.
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