Asset & Liability Management – Forecasting Volume and Duration of Core Demand Deposits

Demand deposits accounted for more than 27% of the total liabilities of Canadian Western Bank at the end of 2006. These deposits have no specific maturities and may behave as current liabilities or as longer maturing liabilities. The bank pays lower interest on the demand deposits than on the most part of fixed-term deposits. If we can estimate the portion of the demand deposits that act as longer-term liabilities, we can invest that amount in assets with a higher rate of return. This amount is referred to as “core deposits”. Thus, the purpose of this project is to develop a methodology to model the balance of demand deposits and to obtain the amount of core deposits as well as to find out the implied duration of demand deposits.

Faculty Supervisor:

Dr. Cho-Jieh Chen

Student:

Jiayuan Lu

Partner:

Canadian Western Bank

Discipline:

Mathematics

Sector:

Finance, insurance and business

University:

University of Alberta