A loss default simulation model of the federal bank deposit insurance funds

  • Authors:

  • Rosalind L. Bennett;Daniel A. Nuxoll;Robert A. Jarrow;Michael C. Fu;Huiju Zhang

  • Affiliations:

  • FDIC, Washington, DC;FDIC, Washington, DC;Cornell University, Ithaca, NY;University of Maryland College Park, MD;University of Maryland College Park, MD

  • Venue:
  • WSC '05 Proceedings of the 37th conference on Winter simulation
  • Year:
  • 2005

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Abstract

This paper discusses a simulation model that is used in a martingale valuation approach to measure and value the risk of the FDIC deposit insurance funds. The FDIC insurance funds capitalize a portfolio of insurance policies, each issued to depositors of an individual commercial bank. To evaluate this portfolio, our methodology evaluates the insurance policies for depositors at each individual bank and aggregates to obtain the risk of the entire portfolio. To adequately model the risks associated with credit, interest rate, deposit growth, and loss rate, a multi-dimensional system is formulated. The risk measurement and valuation results are based on Monte Carlo simulation of the system risks.