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Establishing the Liquidity Profile of Non-Maturity Demand Products

In: Business Analytics Progress on Applications in Asia Pacific

Author

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  • Vijayalakshmi Mulakalapalli

Abstract

The Market Risk Management-Asset Liability team at OCBC wanted to develop an empirical methodology to establish the liquidity profile for non-maturity demand deposits. This study proposes to establish the weighted average maturity (WAM) and hence liquidity premium for non-maturity products in the OCBC commercial book. The existing methodology uses two different approaches based on balance trend while assuming normality to balance movements. Stochastic modeling of the historical balance data using Johnson distribution (to accommodate non-normality) and entropy optimization (to achieve global maxima) was used in the improved approach to correct these shortcomings. These two approaches, along with qualitative overlay for a few portfolios, form a robust alternative to the existing method.

Suggested Citation

  • Vijayalakshmi Mulakalapalli, 2016. "Establishing the Liquidity Profile of Non-Maturity Demand Products," World Scientific Book Chapters, in: Jorge L C Sanz (ed.), Business Analytics Progress on Applications in Asia Pacific, chapter 14, pages 401-431, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813149311_0014
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    More about this item

    Keywords

    Business Analytics; Entrepreneurship; Big Data; Information Technology;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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