Essays on Asset Management and Asset Liability Management
Essays on Asset Management and Asset Liability Management

Author: Lidia Bolla

Publisher:

Published: 2016

Total Pages:

ISBN-13:

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The dissertation comprises three articles from the fields of asset liability management and asset management. In the first article, we create a liability benchmark for referencing the asset allocation performance of pension funds and introduce the Asset-Liability-Result (ALR) - the relative performance of the strategic asset allocation (SAA) with respect to the performance of the market value of the liabilities. We apply our approach to the Swiss market and are able to show that the pension funds' recovery from the recent financial crisis took much longer than the value increase of the asset portfolios suggests. The ALR does not intend to benchmark the performance of asset managers, but rather to provide an instrument for analyzing the performance of entire pension fund markets and to present an operational asset liability management tool for individual pension funds. In the second article, we investigate whether fundamental indexing - an alternative to the predominant market value weighting methodology - is able to generate an outperformance in fixed income markets when accounting for differences in the risk factor exposure. The findings of the study suggest that fundamental indexing is able to generate higher returns in the long term. However, our results show statistically significant and economically relevant exposures of the fundamentally weighted indices towards the previously studied risk factors term and default and, in particular, towards the newly introduced risk factors duration, convexity, liquidity and carry trade risk. The elevated risk exposure is able to fully explain the outperformance. The third article analyzes risk commonalities within equity markets around the globe and tests the hypothesis that index linked investing is a major driver for increasing co-movements within equity markets. We find substantial evidence that the growth in index linked investing is related to increased co-movements in trading pattern.

Asset Liability Management Optimisation
Asset Liability Management Optimisation

Author: Beata Lubinska

Publisher: John Wiley & Sons

Published: 2020-04-20

Total Pages: 244

ISBN-13: 1119635489

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An advanced method for financial institutions to optimize Asset Liability Management for maximized return and minimized risk Financial institutions today are facing daunting regulatory and economic challenges. As they manage bank regulation and competition, institutions are also optimizing their Asset Liability Management (ALM) operations. The function of the ALM unit today goes beyond risk management related to the banking book into managing regulatory capital and positioning the balance sheet to maximize profit. Asset Liability Management Optimization: A Practitioner's Guide to Balance Sheet Management and Remodelling offers a step-by-step process for modeling and reshaping a bank's balance sheet. Based on the author's extensive research, it describes how to apply a quantifiable optimization method to help maximize asset return and minimize funding cost in the banking book. ALM ranks as a key component of any financial institution's overall operating strategy. Now, financial professionals can use an advanced solution for optimizing ALM. This book takes a closer look at the evolving role of the ALM function and the target position of the banking book. It provides strategies for active management, structuring, and hedging of a bank balance sheet, while also exploring additional topics related to ALM. A description of the Funds Transfer Pricing (FTP) process related to a bank’s target position Detailed examinations of interest rate risk in the banking book (IRRBB) Discussion of Basel III regulatory requirements and maturity gap analysis Overview of customer behavior, along with its impact on interest rate and liquidity risk Practical spreadsheet models (NII sensitivity and EVE volatility IRRBB model, simplified optimization model for minimization of average funding cost for a bank and an example of behavioral model for Non-Maturing Deposits) Explorations of model risk, sensitivity analysis, and case studies The optimization techniques found in Asset Liability Management Optimization can prove vital to financial professionals who are tasked with maximizing asset return and reducing funding costs as a critical part of business objectives.

Asset Liability Management. 3rd Edition
Asset Liability Management. 3rd Edition

Author:

Publisher: FinanceTrainingCourse.com

Published: 2014-08-05

Total Pages: 185

ISBN-13:

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The book begins with a description of how the revenue generation mechanism of a bank works. Asset liability management (ALM) and associated interest rate and liquidity risks are defined and other measures such as duration and convexity are calculated. In order to understand the various yield curve shapes, shifts and outlooks, a review of the historical US yield term structures is conducted. This is followed by a look at various ALM strategies, in view of future expected interest rate outlooks, and their impact on the maturity distributions of assets & liabilities of banks. Next, the various assumptions used in an ALM model are assessed, followed by an explanation of price and rate gaps with some basic illustrations to understand the concepts of net interest income at risk and market value at risk. ALM reports profile cash flows by maturity or reset buckets. A methodology for building maturity and liquidity profiles for banks’ advances and deposits portfolios using the Pivot table & chart functionality in EXCEL is discussed. Step by step methodologies for various ALM measurement tools follow. These include Fall in Market Value of Equity, Earnings at Risk, Cost to Close liquidity gap, Cost to Close interest rate gap, Rate Sensitive Gap, Duration Gap. An overview of other ALM reports such as price sensitive gap, net interest income (NII) and liquidity gap is given. Applications for explaining immunization and portfolio dedication are presented. An EXCEL Solver based fixed income portfolio optimization model is discussed and scenarios for minimizing duration and maximizing convexity of the portfolio are presented. A discussion of liquidity risk management measures including ratios and analyses for measuring liquidity risk, limits for managing the risk, general and specific requirements for developing a contingency funding plan and liquidity enhancement tactics for company specific and systemic crisis. A methodology for stress testing liquidity using a Value at Risk (VaR) based approach for a fixed income portfolio is also discussed. The book concludes with a case-study for assessing why bank regulations fail. This simulation results based study looks at the efficacy of Capital Adequacy Ratio (CAR) as an indicator of bank performance and seeks to identify a more valuable leading indicator or target account for monitoring bank performance and health.

Sovereign Asset-Liability Management - Guidance for Resource-Rich Economies
Sovereign Asset-Liability Management - Guidance for Resource-Rich Economies

Author: International Monetary Fund

Publisher: International Monetary Fund

Published: 2014-11-06

Total Pages: 51

ISBN-13: 1498343228

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Ample natural resource revenues create both opportunities and challenges for a sovereign to transform its natural resources into well-managed financial assets. Hence, inter-temporal smoothing of revenue and consumption/investment moves to the center stage of macroeconomic policies. The questions arising from natural resource wealth accumulation are becoming more pressing for many countries, given the need to achieve intergenerational equity in a context where commodity prices may not continue their upward trajectory of the past decade. Addressing these questions requires a flexible sovereign asset-liability management (SALM) framework that integrates various macroeconomic and financial trade-offs with the aim of containing financial risk to the sovereign balance sheet. The framework and policy advice aims to guide policymakers across different institutions in weighing those trade-offs.

Asset and Liability Management Handbook
Asset and Liability Management Handbook

Author: G. Mitra

Publisher: Springer

Published: 2011-03-29

Total Pages: 547

ISBN-13: 023030723X

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Recent years have shown an increase in development and acceptance of quantitative methods for asset and liability management strategies. This book presents state of the art quantitative decision models for three sectors: pension funds, insurance companies and banks, taking into account new regulations and the industries risks.