The application of a multiperiod goal programming model in interest rate risk management : a special case of a depository bank / Malick O. Sy, Tan Hwee Cheng

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This paper develops and employs a multiperiod goal programming model to examine the normative effects of changing interest rates on the rearrangements of commercial bank balance sheets and associated profits. A two-stage state preference framework allows a dynamic interpretation of the model's prescribed decisions as well as a natural incorporation of profit sensitivity to interest rate risk. The model includes "on-" and "off-balance-sheet" decision variables. Experimental results should indicate that constraining the latter decisions can seriously curtail the bank's ability to achieve its profit objectives.