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The Valuation and Hedging of Variable Rate Savings Account


Author Info

  • Frank de Jong

    (University of Amsterdam, CEPR)

  • Jacco Wielhouwer

    (ING Group, CentER, Tilburg University)


Variable rate savings accounts have two main features. The client rate is variable and deposits can be invested and withdrawn at any time. However, customer behaviour is not fully rational and actions are often performed with a delay. This paper focusses on measuring the interest rate risk of variable rate savings accounts on a value basis (duration) and on the problem how to hedgethese accounts. In order to model the embedded options and the customer behaviour we implement a partial adjustment specification. The interest rate policy of the bank is described in an error-correction model.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 01-112/2.

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Date of creation: 22 Nov 2001
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Handle: RePEc:dgr:uvatin:20010112

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Keywords: Term structure; duration; uncertain cash flow; variable rates of return;

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Cited by:
  1. Marie-Paule Laurent, 2004. "Non-maturity deposits with a fidelity premium," Working Papers CEB, ULB -- Universite Libre de Bruxelles 04-016.RS, ULB -- Universite Libre de Bruxelles.


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