T. Bosch, J. Mukuddem-Petersen, M. Mulaudzi, and M.A. Petersen (South Africa)
Dynamic Modeling; Banks; Profit; Loss.
In this conference paper, we investigate the profitability of a bank with interacting loan portfolios in a L´evy process setting. The main motivation for our study is the need to generalize the more traditional discrete- and continuous time models of banking items such as profit. An important outcome of our research is an explicit stochastic model for nett income after taxes and before the cost of funds (NI ATBCF). This model enables us to characterize sub- and superoptimal NIATBCF in terms of the cost of funds. By way of conclusion, we provide a brief discussion of some of the financial economic aspects of the dynamic profitabil ity model deduced in the main body of the paper.
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