Hostname: page-component-78c5997874-g7gxr Total loading time: 0 Render date: 2024-11-15T18:44:54.382Z Has data issue: false hasContentIssue false
  • English
  • Français

Bank Portfolio Selection

Published online by Cambridge University Press:  19 October 2009

Joel Fried
Get access Rights & Permissions [Opens in a new window]

Extract

This paper describes the development and testing of a model of bank portfolio selection that considers variability of both income and gross asset levels as the risks involved in banking. In particular, the model is formulated as maximizing expected profit subject to risk constraints on wealth losses and the availability of liquid assets. The parameters for these constraints include the covariance matrices of rates of return on bank assets and deposit changes. Included in the latter category are fluctuations in business loans which are treated as negative deposits because, due to deposit feedbacks and the like, these can reasonably be considered exogenous to the short-run portfolio decision. Basically, the model is an extension of Markowitz's work [11] to incorporate problems associated with portfolios that include assets having imperfect markets and liabilities that are not completely under the control of the economic unit. As such, it is applicable (with minor institutional modifications) to the entire spectrum of financial intermediaries.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 5 , Issue 2 , June 1970 , pp. 203 - 227
Copyright
Copyright © School of Business Administration, University of Washington 1970

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

1.Charnes, Abraham, and Cooper, W. W. “Chance-Constrained Programming,” Management Science, VI, October 1959, pp. 73–79.CrossRefGoogle Scholar
2.Federal Reserve Bank of Boston, Functional Cost Analysis: Comparative Study, 79 Banks, 1963–1964, 1964.Google Scholar
3.Federal Reserve Bank of Boston, Functional Cost Analysis Data, 1966: Summary of Data from 91 Member Banks First Federal Reserve District, 1967.Google Scholar
4.Federal Reserve Bank of Boston, Functional Cost Analysis of a Participating Bank, 1960, 1962, and 1964t 1961, 1963, and 1965.Google Scholar
5.Federal Reserve Bank of Boston, Functional Cost Analysis: Second Mythical Bank, First Federal Reserve District, 1959, 1960.Google Scholar
6.Federal Reserve Bank of Boston, Statistical Summary: Functional Cost Analysis Data, 95 New England Banks, 1964t 1965.Google Scholar
7.Fiacco, Anthony V., Programming Under Nonlinear Constraints by Unconstrained Minimization: A Primal-dual Method, Technical Papers, RAC-TP-96. McLean, Virginia: Research Analysis Corporation, 1963.Google Scholar
8.Fiacco, Anthony V, and McCormick, Garth P., “Computational Algorithm for the Sequential Unconstrained Minimization Technique for Nonlinear Programming,” Management Science, X, July 1964, pp. 601–617.CrossRefGoogle Scholar
9.Fried, J., “A Generalized Markowitz Model of Bank Portfolio Selection” (Ph.D. diss., Northwestern University, 1969).Google Scholar
10.Hodgman, Donald R., Commercial Bank Loan and Investment Policy, Champaign: Bureau of Economic' and Business Research, University of Illinois, 1963.Google Scholar
11.Markowitz, Harry M., Portfolio Selection, New York: Wiley, 1959.Google Scholar
12.McCormick, Garth P.; Mylander, W. Charles III; and Fiacco, Anthony V., Computer Program Implementing the Sequential Unconstrained Minimization Technique for Nonlinear Programming, Technical Papers, RAC-TP-151, McLean, Virginia: Research Analysis Corporation, 1965.Google Scholar
13.Brothers, Salomon and Hutzler, , An Analytical Record of Yields and Yield Spreads from 1950 through 1966, 1967.Google Scholar