An Empirical Analysis of the Jarrow-van Deventer Model for Valuing Non-Maturity Demand Deposits

Operational risk

“…As argued in Jarrow and Purnanandam (2004), this is possible if the firm has some special talent, information, or managerial expertise in selecting assets for investment. It is interesting to point out that the NPV process has long been recognized, and even estimated, for credit cards and consumer deposits (see Chatterjea et al, 2003;Janosi et al, 1999). In this context, the NPV process is due to the fact that banks can pay below market rates on demand deposits or charge above market rates on credit card loans.…”

On deposit volumes and the valuation of non-maturing liabilities

“…Janosi et al (1999) provide an empirical investigation of the model by Jarrow and Van Deventer (1998) in the US market. In the work of Selvaggio (1996) the deposit rate is the sum of the market rate and the option adjusted spread, see Selvaggio (1996) for details.…”

Operations in Financial Services—An Overview

“…Jarrow and Van Deventer's (1998) model for valuing demand deposits and credit card loans using an arbitrage-free methodology assumes that demand deposit balances depend only on the future evolution of interest rates; however, it does allow for more complexity, such as macroeconomic variables (income or unemployment), and local market or firm-specific idiosyncratic factors. Janosi et al (1999) (2004) adds month-of-the-year dummy variables in the regressions to account for calendar-specific inflows (e.g., bonuses or tax refunds), or outflows (e.g., tax payments). He focuses on core deposits, i.e., checking accounts and savings accounts; distinguishes between the behavior of total and retained deposits; and devel-ops models for different deposit types, i.e., business and personal checking, NOW, savings, and money market account deposits.…”