# Modelling Bank deposit with replicating portfolio

I am trying to understand how deposits in bank are modelled, and one such modelling approach is replicating portfolio approach as provided in http://www.diva-portal.org/smash/get/diva2:1208749/FULLTEXT01.pdf

Below is the excerpt on how to construct a replicating portfolio

However I failed to understand how exactly Author wants to build the replicating portfolio. Let say I have a deposit amount $$N_t$$ at time $$t$$. And as a process of building replicating portfolio, I consider $$2$$ time buckets i.e. $$6M, 12M$$, allocation of total deposit amount into these $$2$$ buckets are $$N_{1,t}, N_{2,t}, \left(N_{1,t} + N_{2,t} = N_t\right)$$. And 1st time bucket consists of $$6$$ instruments with $$1M$$ maturities and similarly second bucket consist of $$12$$ instruments with $$1M$$ maturities. Therefore there are $$18$$ such instruments.

I failed to understand,

1. How exactly the principal amounts $$N_{1,t}, N_{2,t}$$ are allocated into those $$18$$ instruments?
2. What those $$18$$ instrument each with $$1M$$ maturities are?
3. How exactly they are mimicking my original deposit?

Any insight on above pointers will be very helpful.

• This paper was published in 2018. As far as I know, all such models pertaining to non-maturity deposits / deposit beta performed very badly after COVID started. Jan 12, 2022 at 2:31

How exactly the principal amounts $$N_{1,t}, N_{2,t}$$ are allocated into those $$18$$ instruments?
What those $$18$$ instrument each with $$1M$$ maturities are?