Abstract

Deposit insurance is a financial tool that guarantees the bank’s depositors from banks’ failure to maintain their assets. The dynamic of banks’ assets leads to the uncertainty of banks’ ability to pay their debts to the third party when due. Employing a multi-state regime-switching volatility in the insurance pricing, is aimed to fit the stochastic occurrence on the asset’s volatility. Some numerical results by using Monte Carlo and quasi-Monte Carlo, are performed to obtain the price of deposit insurance efficiently. Comparison between the obtained results by the Monte Carlo and quasi-Monte Carlo methods and the standard Black–Scholes model (no-switching) are also presented. In our finding, the quasi-Monte Carlo method has a faster convergence, better smoothness, and greater accuracy compared to the Monte Carlo method.

Original languageEnglish
Article number253
JournalInternational Journal of Applied and Computational Mathematics
Volume7
Issue number6
DOIs
Publication statusPublished - Dec 2021

Keywords

  • Black–Scholes
  • Deposit insurance
  • Geometric Brownian motion
  • Quasi-Monte Carlo

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