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Bank balance sheet risk allocation

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  • Júdice, Pedro
  • Zhu, Qiji Jim

Abstract

We formulate the optimal balance sheet management problem as a linear program and study it using a duality approach. In addition to helping determine the optimal balance sheet, the dual problem also provides us the interest rate risk and credit risk pricing.

Suggested Citation

  • Júdice, Pedro & Zhu, Qiji Jim, 2021. "Bank balance sheet risk allocation," Journal of Banking & Finance, Elsevier, vol. 133(C).
    • Handle: RePEc:eee:jbfina:v:133:y:2021:i:c:s0378426621002132
    DOI: 10.1016/j.jbankfin.2021.106257
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    References listed on IDEAS

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    1. Jonathan M. Borwein & Qiji J. Zhu, 2016. "A Variational Approach to Lagrange Multipliers," Journal of Optimization Theory and Applications, Springer, vol. 171(3), pages 727-756, December.
    2. Schmaltz, Christian & Pokutta, Sebastian & Heidorn, Thomas & Andrae, Silvio, 2014. "How to make regulators and shareholders happy under Basel III," Journal of Banking & Finance, Elsevier, vol. 46(C), pages 311-325.
    3. Grzegorz Hałaj, 2016. "Dynamic Balance Sheet Model With Liquidity Risk," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 19(07), pages 1-37, November.
    4. Hałaj, Grzegorz, 2013. "Optimal asset structure of a bank - bank reactions to stressful market conditions," Working Paper Series 1533, European Central Bank.
    5. Bandyopadhyay, Arindam & Singh, Pratima, 2007. "Estimating Recovery Rates on Bank’s Historical Loan Loss Data," MPRA Paper 9525, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

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