Analysis of savings rate and deposit volume models for replicating portfolios of non-maturing accounts

The focus of this research is to improve on existing savings rate and deposit volume models used for constructing replicating portfolios of non-maturing accounts (NMAs). Such accounts have proven difficult to model, especially, as they offer savings rates to clients that change infrequently and with discrete jumps. The thesis uses savings rate and deposit volume data from both the Netherlands and Germany for a period of eight years. The data was kindly provided by NIBC Bank N.V., a Dutch corporate bank. Savings rates are modeled with a latent process that governs when changes occur. The model of the deposit volumes is chosen with an iterative Box-Jenkins procedure from an ARIMA family of models. The research project is fully implemented in MATLAB and can be directly used with common approaches to constructing and valuating replicating portfolios of non-maturing accounts. The two main conclusions of the thesis are that the discrete jump process is flexible to the frequency and type of rate change and that the current use of assumption-based volume amortization is conservative. This study recommends for risk practitioners to reexamine the savings rate models currently in use and to benchmark replicating portfolio components with those presented here