Maturity of Savings Deposits

Liquidity management, the management of funds in order to have suffcient short term assets to pay off short term debts, is an important aspect of risk management. According to Frauendorfer and Schürle (2007), duration matching is a widely used technique to manage liquidity risk. However, duration matching is difficult for savings deposits, because they have no fixed maturity. Hence, the goal of this research is to determine the maturity of savings deposits, so that duration matching can be applied. Instead of a single maturity, I divide the total deposit volume into several parts, or buckets, with their own maturity. This research uses future deposit volume simulations in combination with Value-at-Risk and the liquidity constraint of Bardenhewer (2007) to create the buckets. The final model is evaluated by comparing it with a much simpler model, the random walk. I conclude that the final model only provides additional value for products with an attractive client rate. In contrast, for less attractive products both models result in nearly identical volume simulations and buckets.