An optimal portfolio and capital management strategy for basel III compliant commercial banks

dc.contributor.authorMuller, Grant E.
dc.contributor.authorWitbooi, Peter J.
dc.date.accessioned2017-12-01T08:50:17Z
dc.date.available2017-12-01T08:50:17Z
dc.date.issued2014
dc.description.abstractWe model a Basel III compliant commercial bank that operates in a financial market consisting of a treasury security, a marketable security, and a loan and we regard the interest rate in the market as being stochastic. We find the investment strategy that maximizes an expected utility of the bank’s asset portfolio at a future date. This entails obtaining formulas for the optimal amounts of bank capital invested in different assets. Based on the optimal investment strategy, we derive a model for the Capital Adequacy Ratio (CAR), which the Basel Committee on Banking Supervision (BCBS) introduced as a measure against banks’ susceptibility to failure. Furthermore, we consider the optimal investment strategy subject to a constant CAR at the minimum prescribed level. We derive a formula for the bank’s asset portfolio at constant (minimum) CAR value and present numerical simulations on different scenarios. Under the optimal investment strategy, the CAR is above the minimum prescribed level. The value of the asset portfolio is improved if the CAR is at its (constant) minimum value.en_US
dc.identifier.citationMuller, G.E. & Witbooi, P.J. (2014). An optimal portfolio and capital management strategy for basel III compliant commercial banks. Journal of Applied Mathematics, 2014: 723873en_US
dc.identifier.issn1110-757X
dc.identifier.urihttp://dx.doi.org/10.1155/2014/723873
dc.identifier.urihttp://hdl.handle.net/10566/3287
dc.language.isoenen_US
dc.privacy.showsubmitterFALSE
dc.publisherHindawi Publishing Corporationen_US
dc.rightsCopyright © 2014 G. E. Muller and P. J. Witbooi. This is an open access article distributed under the Creative Commons Attribution License,which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
dc.status.ispeerreviewedTRUE
dc.subjectBasel III complianten_US
dc.subjectCommercial banken_US
dc.subjectInvestment strategyen_US
dc.subjectCapital Adequacy Ratio (CAR)en_US
dc.subjectCommittee on Banking Supervision (BCBS)en_US
dc.titleAn optimal portfolio and capital management strategy for basel III compliant commercial banksen_US
dc.typeArticleen_US

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