In risk management, the probability distribution must adequately capture the risks that matter most, namely the outliers. I estimate the parameters as if the sample were upper censored to put the focus to the most negative observations (non-censored outliers) and then only estimate the...

I present new analytical pricing formulae for derivatives of compounded rates. Since the announced replacement of LIBOR, the compounded overnight rate has become the new market standard for floating-rate loans and notes. Many contracts contain a zero-based floor. The compounded rate is a time...

I present an analytical valuation framework for the management of fixed-income instruments traded in imperfectly competitive markets, like demand deposits and credit card loans in the banking book, inter alia, to stabilize the abnormal profit margin. Banking book instruments contain embedded...

Low key rates hurt the profits of deposit-taking institutions in a differentiated Bertrand game if there is neither a tax on banknotes, nor a limit on its quantity, nor a reduction of its quality. By making the electronic dollar the unit of account and taxing paper currency, the central bank can...

Core bank deposits are a cheap funding source. Alternative lenders have to pay a spread above the banks' funding rate. However, by lending under the risk of negative rates, banks have to consider the zero-based floor option to close arbitrage opportunities. Alternative lenders, unlike banks, do...

Corporate credit ratings remove the information asymmetry between lenders and borrowers to find an equilibrium price. Structured finance ratings, however, are informationally insufficient because the systematic risk of equally rated assets can vary substantially. As I demonstrate in a Monte...

We present a coherent management framework for non-maturity accounts to derive the hedging strategy from the marketing strategy to generate stable net interest income. Our framework consists of three building blocks: (1) a discrete-time dynamic term structure model for the evolution of interest...

Corporate ratings remove the information asymmetry between lenders and borrowers to find an equilibrium price. Structured credit ratings, however, are informationally insufficient because the systematic risk of equally rated assets can vary substantially. As I demonstrate, highly-rated...

Non-maturity deposits like savings accounts or demand deposits contain significant option risks caused by the bank's discretionary pricing and the customers' withdrawal right. Option risks follow from inherent non-linear factor exposures. I propose an ordinal response model for deposit rate...