This paper incorporates risk-based margin requirements into portfolio liquidation procedures in a novel fashion. The approach is analytic and, as a result, more efficient than conventional numerical liquidation methods. The margin requirement calculation is a self-contained inner optimization...

Following the bankruptcy of Lehman Brothers, interbank borrowing and lending dropped, whereas reserve holdings of depository institutions skyrocketed, as the Fed injected liquidity into the U.S. banking sector. This paper introduces bank liquidity risk and limited market participation into a...

The excess liquidity of commercial banks is very often mentioned in the CEMAC as one of the limits of monetary policy implementation by BEAC. In this paper, we tried to address excess reserves in the CEMAC banking system looking from the point of view of commercial banks. Indeed, commercial...

How should shareholders make dividend and recapitalization policies for a bank when there exists execution delay and fix costs on recapitalizations? What is the optimal time and magnitude of recapitalization if the magnitude of recapitalization is pre-determined at the time of...

A stochastic optimization framework is presented for liquidity risk management which is one of the principle issues facing an asset/liability manager. The various sources of cashflow uncertainty are first introduced. The notion of portfolio risk is then formally defined. The concepts of a risk...

We propose a structural model of a financial institution that can invest in both liquid and illiquid assets. The goal of this firm is to maximize the profit of its shareholders, while satisfying some capital requirement and liquidity constraint. Using stochastic control techniques, we derive the...

We formulate a continuous-time model of a deposit taking bank, operating subject to capital adequacy regulation, and where the bank's loans are exposed to default risk. The bank maximises their market value of equity by appropriately controlling loan and equity issuance, dividend payments, and...

Following a companion paper where we proposed a model of a financial institution that can invest in both liquid and illiquid assets and whose goal is to maximize the profit of its shareholders, while satisfying some capital and liquidity requirements, we now incorporate correlations between the...

The analysis of payment data has become an important task for operators and overseers of financial market infrastructures. Payment data provide an accurate description of how banks manage their liquidity over time. In this paper we compare three models to predict future liquidity flows from...

A consistent framework for optimal liquidity management is presented. This framework optimizes the cost of covering expected cashflow gaps without violating regulatory and business constraints. Anticipated economic value loss, cashflow loss, and adverse market impact are the major drivers of...