A PROGRAMMING MODEL FOR BANK HEDGING DECISIONS

This study constructs, solves, and interprets a normative model that focuses on the risk management needs of a banking institution. The optimization model is a prototype, and it explicitly incorporates uncertainty via the two‐stage linear programming format. Both the traditional asset‐liability management and the newer hedging risk management strategies are included. The model suggests that although the specific risk management strategy mix depends on the economic scenario, hedging should be actively considered as a workable strategy.