An Analytic Valuation of a Deposit Insurance

Authors

  • Endah RM Putri Department of Mathematics, Sepuluh Nopember Institute of Technology Jl. Raya ITS, Sukolilo, Surabaya, 60111, Indonesia
  • Venansius R Tjahjono Department of Mathematics, Sepuluh Nopember Institute of Technology Jl. Raya ITS, Sukolilo, Surabaya, 60111, Indonesia
  • Daryono B Utomo Department of Mathematics, Sepuluh Nopember Institute of Technology Jl. Raya ITS, Sukolilo, Surabaya, 60111, Indonesia

DOI:

https://doi.org/10.11113/matematika.v34.n3.1144

Abstract

A deposit insurance is a measure to protect bank’s depositors fully or partly from the risk of losses caused by the banks failure to pay its debts when due. If the bank does not meet the payment since the asset value of the bank is less than debt, the guarantor will do the payment and take over the bank’s assets. The role of the guarantor is considered as a deposit insurance. Similar mechanism of the insurance to the European put option model, motivates the use of a Black-Scholes model in the valuation. The deposit insurance model is solved using a Fourier transform method analytically. Numerical results based on the solution confirms the results obtained by previous research. Also, some behaviours of the deposit insurance premium due to interest rate, volatility, and deposit-to-asset value ratio are presented.

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Published

31-12-2018

How to Cite

Putri, E. R., Tjahjono, V. R., & Utomo, D. B. (2018). An Analytic Valuation of a Deposit Insurance. MATEMATIKA, 34(3), 115–128. https://doi.org/10.11113/matematika.v34.n3.1144

Issue

Volume 34 (December 2018) - Special Issue

Section

Mathematics

License

Copyright of articles that appear in MATEMATIKA: MJIAM belongs exclusively to Penerbit UTM Press, Universiti Teknologi Malaysia. This copyright covers the rights to reproduce the article, including reprints, electronic reproductions or any other reproductions of similar nature.