Estimating Probability Distribution of Asset Value Based on Dual Effects of Deposit Insurance with the Minimum Cross-Entropy Principle

Abstract

A model is proposed to estimate the probability distribution of asset value based on the benefit effects as well as the risk effects of deposit insurance with the minimum cross-entropy principle. Three scenarios are constructed to depict situations with different dual effects of deposit insurance. The corresponding assets distribution functions are obtained accordingly. The results show that it is positively correlated between the supervision level and the risk aversion effects of deposit insurance. The increase of the deposit insurance premium moves the bank's assets distribution to the right side although not significantly. The asset probability distributions estimated in this paper can be taken as a reference for banks to choose the proper credit investment projects.