The Effects of the Change of Bond Insurance Premium and Capital Regulatory Ratio on Loan and Deposit Rates: An Option-Pricing Model

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Title:	The Effects of the Change of Bond Insurance Premium and Capital Regulatory Ratio on Loan and Deposit Rates: An Option-Pricing Model
Authors:	Pao, Shin-heng;Lin, Jyh-horng;Chang, Shu-hui
Contributors:	淡江大學國際企業學系
Keywords:	Municipal bond;Capital-to-deposit ratio;Interest margins;Bond insurance;Elasticity;option
Date:	2011-07
Issue Date:	2011-09-30 14:04:35 (UTC+8)
Publisher:	Zographou: World Scientific and Engineering Academy and Society (W S E A S)
Abstract:	We propose an option-based model that examines the relationships among municipal bonds with prepackaged insurance, capital insurance, and optimal bank interest margins. If the elasticity effect is positive (negative), then an increase in the bond insurance premium will increase the bank's optimal loan rate (optimal deposit rate). If the elasticity effect is negative (positive), then an increase in the capital-to-deposit ratio will increase (decrease) the bank's optimal loan rate. But an increase in the capital-to- deposit ratio increase the bank's optimal deposit rate under the positive elasticity effect.
Relation:	WSEAS Transactions on Mathematics 7(10), pp.219-228
Appears in Collections:	[Graduate Institute & Department of International Business] Journal Article

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