Interest Rate Risk of Non-Maturity Bank Accounts : From the Marketing to the Hedging Strategy

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 rates, (2) an ordinal logistic regression for the bank's pricing behaviour, (3) an autoregressive process with external variables for the customers' withdrawal and prepayment behaviour. All blocks are based on the same periodic frequency. Hence, we can easily put them together for valuation under various interest rate and marketing assumptions and to build the dynamic hedging strategy