Application of homotopy perturbation method on bank asset and liability portfolio system

Abstract

The research presents the dynamic nature of decision making support for asset and liability management using Ordinary Differential Equation. The model was tested with the use of maple17 software for analysis, which shows banking industry in Nigeria can manage their asset and liability through cash flow of deposits and loans. Setting the bank's initial position and different deposit flow situations, the model allows to present simulations with the use of Homotopy Perturbation Method for analytical solution and can be used for measurement of liquidity risk to examine loan decisions to choose a realistic result. The result shows that people are encouraged to save their money when the interest rate of deposit is high. To the contrary, people are discouraged to take loan when the interest rate is so high. The result of stress-testing shows the kind of dynamic processes taking place in banking sectors. In this case, it is possible for managers to adjust their bank liabilities to earn assets as much as possible.