Asset Liability Management- Virtual Series
Learn how to identify, measure and manage the interest rate risk, credit risk and liquidity risk on the balance sheets of firms, with particular emphasis on the balance sheets of financial institutions.
Prerequisite knowledge:
- Fixed income arithmetic
- Intermediate MS Excel skills
- Elementary calculus
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Module 1: Risk Fundamentals
- Taxonomy of risks
- Elements of a risk model
- Risk measures: VaR and expected shortfall
- Model risk
- Stress Testing
Module 2: Introduction to ALM
- Interest rate risk on the balance sheet
- Liquidity risk on the balance sheet
- Credit risk on the balance sheet
- Banking book vs trading book: Hidden risks
- ALM Governance and the pivotal role of the ALCO
Module 3: Review of Fixed Income Essentials
- Rates, yields and term structures
- Fixed income instruments
- Repurchase agreements
Module 1: Interest Rate Risk
- First-order measures of rate and yield sensitivity
- Determining the duration of a fixed income portfolio
- First-order rate VaR
- Second-order rate and yield sensitivity: Convexity
- Optionality and negative convexity
- Second-order rate VaR
Module 2: Funding Gap Analysis
- Funding gaps: maturity and repricing mismatches
- Managing net interest income
Module 3: Duration Gap Analysis
- Duration gaps
- The duration of equity
- Balance sheet immunization
- Market value of equity
Module 4: Securitization: An ALM Tool
- The rationale for securitization
- Securitization mechanics
- Cashflow structures
- ALM applications
Module 5: Case Studies
- Northern Rock: Liquidity risk
- Lehman: The run on repo
- AIG: Mark-to-market and collateral
Module 6: Desk Ready Skills Knowledge Check
Module 1: Interest Rate Risk- Overview & Measurement
- Modeling interest rate risk
- Deterministic vs. Stochastic models
- Arbitrage models
- Equilibrium models
- Types of Interest Rate Risks
- Yield Curve Risk
- Equilibrium models
- Basis Risk
- Macaulay Duration
- Modified Duration
- Core Elements of Duration
- Convexity Concept
- Duration gap of Equity
- Earnings versus Shareholder Value
- Effective Duration
- Effective Convexity
- Hedging Duration & Convexity
- Concept of Negative Duration
- Key Rate Duration
- Math of Sensitivity Parameters
Module 2: Measuring Risk Techniques
- Sensitivity Parameters
- Simulation Methodologies
- Rate Shocks
- Simple Simulation
- Historical Simulation
- Monte Carlo Simulation
- Transfer Pricing as a Tool
- Value-at-Risk
- Core Elements of VAR
- VaR Greeks & Math
- Correlation & Covariance
- VaR Methodologies
- Implementation of VaR