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Optimization of Collateral allocation for Securities Lending: An Integer Linear Programming Approach
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Optimization and Systems Theory.
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Optimization and Systems Theory.
2019 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

Collateral management has, during the most recent years, been an increasingly important part of a bank’s operation. The bank is facing an allocation problem of how to post collateral to all its counterparties in order to mitigate the credit risk and the number of transactions that requires collateralization is increasing. This master thesis has investigated if it is possible to effectively solve this allocation problem and hence reduce the cost of collateral management by using numerical optimization. Four mathematical linear optimization models of different structure and characteristics have been developed which aims to reflect the complex nature of the problem.

These models have been solved with real-life data and it can be concluded that optimization can be used in order to reduce the cost of the collateral allocation and that the problem can be efficiently solved in an acceptable amount of time. The solution showed a reduced cost of almost 15% for the selected business day compared to the cost of current collateral allocations.

Abstract [sv]

Säkerhetshantering har under de senaste åren varit en allt viktigare del av en banks verksamhet. Banken står inför ett allokeringsproblem kring vilka säkerheter som ska ställas till dess motparter för att minska den kreditrisk som uppkommer i samband med lånehandeln samt att antalet transaktioner som kräver ett säkerställande ökar. Denna uppsats har undersökt möjligheten till att effektivt lösa detta allokeringsproblem och därigenom minska kostnaden för säkerhetshantering genom att använda numerisk optimering. Fyra matematiska linjära optimeringsmodeller av olika strukturer och egenskaper har utvecklats som syftar till att återspegla problemets komplexa natur.

Dessa modeller har lösts med verklig data och slutsatsen är att optimering kan användas för att minska kostnaden för en banks säkerställande och att problemet effektivt kan lösas inom en acceptabel tidsram. Lösningen visade en reducerad kostnad på nästan 15% för den valda arbetsdagen jämfört med kostnaden för nuvarande allokering av säkerheter.

Place, publisher, year, edition, pages
2019.
Series
TRITA-SCI-GRU ; 2019:105
Keywords [en]
Collateral Management, Collateral optimization, Operations Research, Linear Programming
Keywords [sv]
Collateral Management, Collateral optimization, Operations Research, Linear Programming
National Category
Mathematics
Identifiers
URN: urn:nbn:se:kth:diva-252554OAI: oai:DiVA.org:kth-252554DiVA, id: diva2:1319482
External cooperation
SEB
Subject / course
Optimization and Systems Theory
Educational program
Master of Science - Industrial Engineering and Management
Supervisors
Examiners
Available from: 2019-06-03 Created: 2019-06-01 Last updated: 2019-06-04Bibliographically approved

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CiteExportLink to record
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