Asset Liability Management

Course details

Volatile global markets, proliferation of new financial products and changing regulatory environments have made Asset Liability Management (ALM) a critical function for banks and financial institutions today. It is therefore becoming increasingly important to define, measure, monitor and manage an institution's exposure to Foreign Exchange, Interest Rate and Liquidity Risks on a coordinated and consistent basis.

After Completing this course you will be able to:

• Use ALM to meet regulatory/solvency/liquidity requirements
• Control and diversify risk
• Reduce mismatches
• Establish strategic directions
• Add value creation, Risk-adjusted Return on Capital (RAROC) and Capital Allocation

Course Outline

1. Scope of ALM
   • Objectives
   • Introduction
   • Interest Rate Risk
   • Foreign Exchange Risk
   • Commodity Risk
   • Stock Market Risk
   • Liquidity Risk
   • Credit Risk
2. Objectives of ALM
   • Objectives
   • Introduction
   • Rate Scenario Table
   • Short Term and Long Term Risk
3. Growing Relevance of ALM
   • Objectives
   • Nature and Significance of ALM
   • Financial Volatility
   • Explosion of New Products
   • Regulatory Initiatives
   • Management Recognition
4. A Nine-part Framework for ALM
   • Objectives
   • Introduction
   • Strategic Framework
   • Organizational Framework
   • Operational Framework
   • Analytical Framework
   • Technology Framework
   • Information Reporting Framework
   • Performance Measurement Framework
   • Regulatory Compliance Framework
   • Control Framework
5. Strategies of ALM
   • Objectives
   • Introduction
   • On Vs. Off-Balance Sheet Strategy
6. Yield Curve Analysis
   • Objectives
   • Introduction to Yield Curve Analysis
   • Types of Yield Curves
   • Analyzing Yield Curve
   • Bond Arbitrage Strategies
   • Application of Yield Curve
7. Interest Rate Gap Analysis - I
   • Objectives
   • Introduction to Gap
   • Gap Report
   • Considerations in Slotting of Different Items
8. Interest Rate Gap Analysis – II
   • Objectives
   • Income Impact
   • Gap Limits
   • Restructuring Strategies
   • Strengths and Limitations
9. Interest Rate Gap Analysis – III
   • Objectives
   • Asset Restructuring Strategy
   • Liability Restructuring Strategy
   • Growth Strategy
   • Shrinkage Strategy
   • Off-Balance Sheet Strategy
10. Simulation and Scenario Analysis - I
    • Objectives
    • Introduction to Simulation
    • Measuring Risk Positions
    • Scenarios and Results
    • Simulation Modeling
    • Backtesting
11. Simulation and Scenario Analysis – II
    • Objectives Non-specific Maturity Items Business Strategies Monte Carlo Simulation Software Packages Strengths and Limitations
12. Duration I
    • Objectives
    • Introduction
    • Duration Vs. Yield
    • Duration Vs. Maturity
    • Duration Vs. Coupon
13. Duration II
    • Objectives
    • Duration of a Perpetual Bond
    • Duration of a Bond with Embedded Options
    • Duration of Portfolio
    • Duration of Off-Balance Sheet Items
    • Approximation in Duration
    • Gap Vs. Duration
    • Payment Frequency
    • Strategies for Risk Management
14. Duration III
    • Objectives
    • Duration of Equity and Leverages
    • Examples
    • Duration of Complex Items
    • Leveraged Inverse Floaters
    • Zero Coupon Yield Curve
    • Comparison
15. Duration IV
    • Objectives
    • Duration of Complex Items
    • Zero Coupon Yields Curve
    • Comparison
16. Strategies for Internal Risk Management
    • Objectives
    • Dedication
    • Immunization
    • Indexation
    • Active Management
    • Rate Anticipation
17. Basis Point Value
    • Objectives
    • Introduction
    • Calculation of Basis Point Value for On-Balance Sheet Items
    • Calculation of Basis Point Value for Off-Balance Sheet Items
    • Basis Point Value of a Portfolio
18. Convexity
    • Objectives
    • Introduction
    • Definition of Convexity
    • Convexity Calculation
    • Convexity and Yield
    • Convexity, Maturity, Coupon and Price Change
    • Convexity of Portfolio
    • Positive and Negative Convexity
19. Review of Statistical Concepts
    • Objectives
    • Statistical Measures
    • Normal Distribution
    • Correlation
    • Volatility and Standard Deviation
20. Value at Risk -I
    • Objectives
    • Introduction
    • Measures of Risk Exposure
    • Computation of VaR
    • Strengths and Limitations of VaR
21. Value at Risk -II
    • Objectives
    • VaR for Foreign Currency Spot and Options
    • VaR for Foreign Exchange Forward
    • VaR for Common Shares
    • VaR for Fixed Income Securities
    • VaR of a Portfolio
    • Applications of VaR
22. Application of Analytical Techniques
    • Objectives
    • Introduction
    • Concepts and Assumptions
    • Application
    • Practices
    • Case Study I
    • Case Study II
23. AL Organization
    • Objectives
    • Introduction
    • Composition of ALCO
    • Scope of ALCO
    • Properties
24. ALCO Meetings
    • Objectives
    • Introduction
    • ALCO Meetings
    • ALCO Data Requirements
25. ALM Policies and Procedures
    • Objectives
    • Introduction
    • Policy Statement
    • Procedure Manual
    • ALCO Reports
26. Funds Transfer Pricing
    • Objectives
    • Introduction
    • Concepts
    • Review of Risks
    • Practices
27. Funds Transfer Pricing - Practices
    • Objectives
    • Introduction
    • Analysis of Techniques
28. Audit of ALM
    • Objectives
    • Introduction
    • Overall Approach
    • Audit