LIQUIDITY MANAGEMENT – A COMPARISON OF APPROACHES TO MODELING CASH FLOWS FOR VARIABLE BANK PRODUCTS

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In recent years, liquidity and interest rate risk management has increasingly focused on variable bank products with a stochastic cash flow profile, such as non-maturing deposits in particular. A key challenge in considering variable bank products in liquidity and interest rate risk management is to accurately model liquidity and interest cash flows and thus to anticipate customer behavior accordingly. This article discusses and evaluates approaches currently used in the market for the liquidity perspective and outlines general challenges in practice.
An overview of liquidity cash flow modeling for variable products:

1. Relevance and regulatory requirements
2. Comparison of approaches to modeling liquidity cash flows
3. Challenges in implementation
4. Modeling approaches must be evaluated according to institution-specific circumstances