Modeling advanced fund transfer pricing with an application of hull-white interest-rate tree in Turkish banking sector

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2017

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Shakirov, Begzod

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The Financial Crisis in 2008 has revealed the need for a more advanced management of liquidity risk in financial institutions. This thesis aims to introduce and implement an advanced Fund Transfer Pricing (FTP) model into banking industries of the developing countries. The methodology of the FTP model, constructed in this research, measures the cost of a product’s cash-flows by splitting them into a deterministic and a stochastic component. The cost of the deterministic part is assessed as an equivalent of the credit-default premium of an institution, whereas the cost of the stochastic component is modeled by a Brownian Motion. Moreover, in order to forecast the future outlook of FTP rates, a simulation of benchmark Interest Rates with an application of Hull-White model has been performed. The information provided by the expected cost of funding could be a guide to the management of a financial institution. The cost of Basel III liquidity metrics have also been applied into the model, which is one of the main contributions of this thesis to the field of Financial Mathematics. This thesis ends with a conclusion and a preview to future investigations and applications.

Subject Keywords

Interest rates., Transfer pricing., Banks and banking., Investment analysis., Financial institutions., Financial statements.

URI

http://etd.lib.metu.edu.tr/upload/12621437/index.pdf
https://hdl.handle.net/11511/26716

Collections

Graduate School of Applied Mathematics, Thesis

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Citation Formats

B. Shakirov, “Modeling advanced fund transfer pricing with an application of hull-white interest-rate tree in Turkish banking sector,” M.S. - Master of Science, Middle East Technical University, 2017.