Modeling Non-Maturing Deposits Using Replicating Portfolio Models

Abstract: In recent years, regulatory and legislative authorities have increased their interest in non-maturing products, more specifically modeling of non-maturing deposits. This increase stems from the ever growing portion of banks funding originating from these products. The main purpose of this thesis is to provide an overview of different replicating portfolio models available for modeling non-maturing deposits and as-sess their applicability and suitability. Six different models suggested in the literature and two model extensions are presented and evaluated based on three categories; goodness of fit, stability and transparency. The results indicate that static replicating portfolios provide a poor fit for modeling the interest rate behavior in current interest rate market conditions.