Modeling deposit portfolio rates: Combining replicating portfolio concepts with regression analysis to improve PPNR stress testing and ALM accuracy

Modeling deposit portfolio rates: Combining replicating portfolio concepts with regression analysis to improve PPNR stress testing and ALM accuracy

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PPNR and ALM modeling teams know first hand that the bar for deposit rate modeling has risen. Thanks to its criticality for projecting NII in rising (and falling) rate environments, senior execu- tives, model validation groups, and regulators are all kicking the tires of traditional deposit rate modeling techniques. In this Perspective, we explain the Novantas regression-based approach and compare its performance to beta and replicating portfolio techniques.
Novantas white paper

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