Assessing the Volume of Changes to Banking Assets and Liabilities Using Genetic Algorithms in Additional Funds Needed Model

Abstract

This paper investigates Small-Medium Banks’ (SMBs) business plans in accordance with the structure of Additional Funds Needed (AFN) model. The Key Profitability Variables (KPVs) are the size and structure of deposits, loans, and their interest rates. This study employs a Genetic Algorithm (GA) problem with hard constraints, to point out the limits to changes in the structure of deposits and loans and the effects of those changes on the P&L of a banking institution. After examining 10,000 iterations with Evolver, an innovative optimization software that uses GA, OptQuest, and linear programming, the alternations, have been narrowed down to 3700 which satisfy both, a) constraints and b) maximization of profits. Having also the distributions, this paper concludes that it is a useful methodology that must be further exploited by applying risk weights, mainly for credit risk, to the structural components of the Balance Sheet, and to other competitive institutions.
 Keywords: banking institutions, genetic algorithms, additional funds needed, operational research

Collaborative Multiobjective Evolutionary Algorithms in the Search of Better Pareto Fronts: An Application to Trading Systems

“…The method used in this work is based on this recommendation. The selected indicators are MACD and stochastic [29]. The first one indicates the so-called surge, the system's tendency, while the second detects the best operating options following the previous trend, also called the wave.…”

“…A wide variety of researchers seek to profit in different markets using different techniques. Some approaches use Genetic Algorithms or other Evolutionary Algorithms to optimize a Neural Network [4,29,30], other Algorithms are based on Genetic Programming [9,31], and still others employ EAs to evolve trading rules [8,20,32]. In [12,13], a version of a technique for optimizing the parameters of TIs such as the Moving Average Convergence-Divergence indicator (MACD) and the Relative Strength Index (RSI) [13] was proposed.…”