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

2018-12-31

How to Cite

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