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Banking And The Advantage Of Hedging

Author

Listed:
  • UDO BROLL

    () (Department of Business and Economics, University of Technology, Dresden, 01062 Dresden, Germany)

  • JACK WAHL

    (Department of Business, Dortmund University, 44221 Dortmund, Germany)

Abstract

In this paper, we study how a competitive banking firm can use a variable deposit rate to insure against profit risk from risky assets and how the utility of the bank manager is affected by this kind of risk management policy. Furthermore, we study the advantage of a risk management policy which is based on financial hedging. Finally, we answer the question which of these risk management policies the bank manager prefers.

Suggested Citation

  • Udo Broll & Jack Wahl, 2006. "Banking And The Advantage Of Hedging," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 2(01), pages 1-11.
  • Handle: RePEc:wsi:afexxx:v:02:y:2006:i:01:n:s2010495206500023
    DOI: 10.1142/S2010495206500023
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    References listed on IDEAS

    as
    1. Mathias Dewatripont & Jean Tirole, 1994. "The prudential regulation of banks," ULB Institutional Repository 2013/9539, ULB -- Universite Libre de Bruxelles.
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    More about this item

    Keywords

    Banking firm; risky assets; variable deposit rate; risk sharing; hedging; bank margin; asset liability management; G21;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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