A Price Formula of Deposit Insurance Based on Merton Deposit Insurance Pricing Model

Meng-le GU, Tao ZHOU, Yi-rong YING

Abstract


A reasonable deposit insurance price can effectively not only reduce the adverse selection problem, but plays an important role in reducing the systemic risk of Banks. By studying the heteroscedasticity of bank asset returns and the sequence of bank debt repayment, this paper deduces the closed form deposit insurance price formula, which further improves and expands Merton's deposit insurance pricing model.

Keywords


Deposit insurance pricing model, Heteroscedasticity of asset returns, Sequence of debt repayment.


DOI
10.12783/dteees/icepe2019/28954

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