DEPOSIT INSURANCE MODEL INCORPORATING INCENTIVES USING BLACK-SCHOLES AND HESTON-NANDI GARCH
Deposit insurance is a financial mechanism that protects bank depositors if the bank is unable to maintain its assets. The deposit insurance institution will charge a premium to the bank as a form of compensation for the guarantee provided, regardless of whether or not the bank will fail at matur...
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| Format: | Theses |
| Language: | Indonesia |
| Online Access: | https://digilib.itb.ac.id/gdl/view/76271 |
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| Institution: | Institut Teknologi Bandung |
| Language: | Indonesia |
| Summary: | Deposit insurance is a financial mechanism that protects bank depositors if the
bank is unable to maintain its assets. The deposit insurance institution will charge
a premium to the bank as a form of compensation for the guarantee provided,
regardless of whether or not the bank will fail at maturity. However, there are
deposit insurance schemes that offer incentives to banks if the bank does not fail at
maturity.
In this study, a deposit insurance premium model is built by incorporating the
addition of incentives to the bank. The model is adapted from the pricing of
European put options. In addition, this study also compares the use of constant
volatility using the Black-Scholes model and the use of time-varying volatility using
the Heston-Nandi GARCH model. This study also presents the simulation results of
the model that has been built to see the behavior of the deposit insurance premium
value against the deposit to asset ratio used. Based on the results of the sensitivity
analysis, it is found that the deposit insurance premium is directly proportional to
the increase in incentives. |
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