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Business Applications of Operations Research by Bodhibrata Nag

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CHAPTER 18

Bank Asset Liability Management

A bank’s liabilities are the funds used by the banks for lending and investment activities. The bank’s capital, reserves, surplus, deposits, and borrowings typically constitute the liabilities. The bank’s investments, advances, fixed assets, balances with central bank, and other banks constitute the assets of the bank. Asset Liability Management1 seeks to manage the volume and mix of various assets and liabilities to minimize the risks, achieve the goals of the bank, ensure liquidity, and adhere to central bank norms.

In this example, we take the case of a bank which wishes to maximize its profit for a given liability whilst ensuring liquidity and adhering to central bank norms. We consider eight time ...

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