Actuarial Pricing of Deposit Insurance

Using a pricing formula for options on coupon bonds (Jamshidian [1989], El Karoui and Rochet [1990]) we are able to compute the actuarial pricing of deposit insurance for a commercial bank. Our formula takes into account the maturity structure of the bank's balance sheet, as well as market parameters such as the term structure of interest rates and the volatilities of zero coupon bonds. The relation with asset liability management methods is explored.