Research On Liquidity Risk Hedge Of Commercial Bank Based On Excess Liquidity Method

Since the global financial crisis in2008, liquidity risk has drawn more and moreattention all over the world. In2008, the Basel committee issued "sound liquidityrisk management and supervision, strengthening the qualitative requirements of theliquidity risk management. And in2010, it released the third edition of the Baselagreement: liquidity risk measurement, standards, and monitoring of theinternational framework, firstly proposed the international standard of quantitativesupervision of liquidity risk. In China, there is the task of guarding against systemicliquidity risk, too. And the outbreak of "shortage of money" in2013, is due to savagegrowth of the commercial banks’ shadow banking. The research of the liquidity riskhedging is meaningful to improve the bank management, reduce the cost ofmaintaining liquidity and prevent bank from failures. Using financial derivatives tohedge liquidity gap, can lock the risk, and reduce the cost. When the bank liquidity issurplus, option can be used for liquidity pricing, and manage it to reduce operationalcosts of the bank.In this paper, it discusses the research on domestic and foreign banks’ liquidityand the liquidity, liquidity risk and Banks’ liquidity risk characteristics. Through thecomparison of banks’ liquidity risk management at different stages, it reflects thenecessity of banks’ liquidity management, and the use of financial derivatives willenhance the level of liquidity management. In this paper, the present situation of ourcountry commercial bank liquidity risk will be analyzed, and the financial market ischanging rapidly nowadays, apparently simple static index management is notenough. But banks’ liquidity hedge method research literature is relatively less,foreign liquidity hedge is mainly limited to firms, little research is about bankliquidity hedge, domestic commercial banks’ liquidity hedge is in a blank state.In this paper, it draws lessons from the excess liquidity pricing model, and usesthe option pricing model, GARCH model and maximum likelihood estimationmethod to price the excess liquidity. In this way, the total value including the optionvalue of excess liquidity is obtained, and revises the total value based on theliquidity gap. It analyzes the applications of excess liquidity value in commercialbanks liquidity hedge. On this basis, it establishes probability model of retainingexcess liquidity, and carries out the empirical analysis, this is the main innovation ofthis article.Nowadays, the connection between banks is increasingly close, assets andliabilities structure is more and more complex. Strengthening liquidity managementis very necessary. In the banks’ liquidity management, the introduction of financialderivatives in liquidity hedge will help decrease the cost. Excess liquidity value’application in financial derivatives such as options, swaps, helps to fully tap thevalue of the excess liquidity. Because of the difference between the value of theexcess liquidity in different banks, the introduction of the excess liquidity value isconducive to the optimal allocation of capital.