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Gideon, F.; Mukuddem-Petersen, J.; Petersen, M. A.

Minimizing banking risk in a Lévy process setting. (English) Zbl 1157.91018

J. Appl. Math. 2007, Article ID 32824, 25 p. (2007).
The authors apply the quadratic hedging approach developed by H. Föllmer and D. Sondermann [Contributions to mathematical economics, H. G. Debreu, 206–223 (1986; Zbl 0663.90006)] to a situation related to bank deposit withdrawals. Their contribution addresses the problem of determining risk minimizing hedging strategy that may be employed when a bank faces deposit withdrawals with fixed maturities resulting from lump sum deposits. Because of discontinuity associated with the dynamics of bank items, the authors construct a Lévy process-driven stochastic dynamic model that consists of assets and liabilities. The paper generalizes in several aspects the results by C. H. Fouche, J. Mukuddem-Petersen and M. A. Petersen [Appl. Stoch. Models Bus. Ind. 22, No. 1, 41–71 (2006; Zbl 1126.60053)] where the description of bank behavior in a Brownian motion framework was considered.
Reviewer: Ryszard Doman (Poznan)

Cited in 4 Documents

MSC:

91B70 Stochastic models in economics
91B30 Risk theory, insurance (MSC2010)
91B62 Economic growth models

Keywords:

quadratic hedging; risk-minimizing strategy; Lévy process; Galtchouck-Kunita-Watanabe decomposition

Citations:

Zbl 0663.90006; Zbl 1126.60053
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References:

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