Two-Stage Real Option-Based Interest Rate Margin Determination Model in the Context of Alternative E-Banking Development Strategies

E-business application in commercial banks has integrated the E-banking with the traditional financial services. The E-banking development is considered into the asset-liability management of commercial banks, and the consequent contribution to the performance of E-currency loan and deposit business is also measured and analyzed. Substitutive or assistant, the alternative E-banking development strategies in early stage have different impacts on the interest rate margin determination in the latter stage from the perspective of cost management of commercial banks. The investment of commercial banks in E- banking development is greatly characterized by uncertainty and irreversibility, on which real option approaches make well- performed decision. Therefore, A two-stage real option-based model is proposed to facilitate the interest rate margin determination of commercial banks in the context of alternative E-banking development strategies. Based on the rule of "two separable decision" and the modern portfolio theory, the costs of E-banking development impact the determination of optimal interest rates. Simultaneously the consequent optimal E-banking development strategy is given when the interest rate margin is determined. Furthermore, suggestions are made to the management of commercial banks on choosing the corresponding E-banking strategies in different scenarios of competitive banking market.