Day 1
ALM introduction and overview
– The role of ALM in various financial institutions
– ALM and growing portfolio of risk management
– ALM aspects in regulatory, financial markets and operations perspectives
– Mapping of financial assets and liabilities to various types of risks
– Organizational requirements
– The role of treasury and finance
– Institutional characteristics of successful ALM
– Current and future market stresses and challenges of ALM
ALM frameworks for net interest income
– Overview of interest rate, liquidity and currency gaps
– Identifying interest-rate sensitive assets and liabilities that impact net interest income (NII)
– Traditional gap analysis of standard asset and liability products
– Basis and yield curve twist risks
– Measuring NII risks with static and sensitivity analysis
– Analysis of impacts on cash flow, accounting performance and economic value
– Multi-currency NII ALM techniques and strategies
– Complications from financial, contractual and real options in assets and liabilities
– Estimating impacts of volatility and correlations in assets and liabilities
– Stress testing techniques in ALM
– NII ALM impacts on liquidity and capital management
– Measuring cost-to-close exposures
Team work: short Excel exercises and case studies.
Managing NII risks with interest rate and foreign exchange derivatives
– Review of interest rate and foreign exchange derivatives used in
ALM
– Pricing forwards, futures, swaps and options using integrated frameworks
– Mark-to-market and mark-to-model techniques
– Applications of interest rate derivatives in NII risk management
– Hedging strategies and effectiveness
– Accounting, liquidity and counterparty concerns from uses of derivatives in ALM
– Managing cost-to-close exposure
Team work: short Excel exercises and case studies.
Optional specialized module: consumer financial products in ALM
– The role of retail and commercial deposits in ALM
– Estimating deposit run-off, elasticity and liquidity impacts
– Structuring, pricing and marketing various types of deposits in ALM
– Characteristics of structured products, insurance and other alternative consumer products
– Organizational interactions of consumer products businesses in ALM
– Transfer pricing policies of consumer funding to treasury
Team work: short Excel exercises and case studies.
Individual evening work
Day 2
Statistical techniques in ALM
– Review of basic statistical distributions, moments and techniques used in modeling
– Measuring risks with standard parametric approaches
– Value at Risk (VaR) techniques
– Advantages and limitations of VaR
– Correlated modeling of risk in ALM
– Measuring risks with Monte Carlo simulation techniques
– Building non-standard Monte Carlo risk modeling
Market risks in asset portfolios and ALM
– Trading, available for sale and investment portfolios in various types of financial institutions
– Portfolio mean – variance metrics and controls
– Risks in bonds and fixed income portfolios
– Duration, DV01, convexity, VaR and other analytical frameworks for fixed income
– Risks in:
– Commercial and retail mortgages, MBS and sub-prime portfolios
– Off-balance sheet commitments and contingencies
– Derivatives portfolios
– Credit card portfolios and various ABS products
– Equity portfolios and equity arbitrage strategies
– Specific risks in portfolios of corporate bonds and equities
– Understanding equity beta and alpha in ALM context
– Establishing policies and controls for market risks
Team work: short Excel exercises and case studies.
Credit risks in asset portfolios and ALM
– Credit risks in commercial / retail loans, credit risky bonds and derivatives
– Interpreting and using credit spreads
– Expected and unexpected credit losses
– Credit risk metrics: Probability of Default (PD), Exposure at
Default (EAD), Loss Given Default (LGD) and credit correlation
– The linkage of PD, EAD and LGD to credit spreads
– Default intensities and migrations
– Estimating recovery rates and LGD from real-world experience
– Estimating default probabilities from current market data
– Real-world vs. risk-neutral default probabilities
ALM introduction and overview
– The role of ALM in various financial institutions
– ALM and growing portfolio of risk management
– ALM aspects in regulatory, financial markets and operations perspectives
– Mapping of financial assets and liabilities to various types of risks
– Organizational requirements
– The role of treasury and finance
– Institutional characteristics of successful ALM
– Current and future market stresses and challenges of ALM
ALM frameworks for net interest income
– Overview of interest rate, liquidity and currency gaps
– Identifying interest-rate sensitive assets and liabilities that impact net interest income (NII)
– Traditional gap analysis of standard asset and liability products
– Basis and yield curve twist risks
– Measuring NII risks with static and sensitivity analysis
– Analysis of impacts on cash flow, accounting performance and economic value
– Multi-currency NII ALM techniques and strategies
– Complications from financial, contractual and real options in assets and liabilities
– Estimating impacts of volatility and correlations in assets and liabilities
– Stress testing techniques in ALM
– NII ALM impacts on liquidity and capital management
– Measuring cost-to-close exposures
Team work: short Excel exercises and case studies.
Managing NII risks with interest rate and foreign exchange derivatives
– Review of interest rate and foreign exchange derivatives used in ALM
– Pricing forwards, futures, swaps and options using integrated frameworks
– Mark-to-market and mark-to-model techniques
– Applications of interest rate derivatives in NII risk management
– Hedging strategies and effectiveness
– Accounting, liquidity and counterparty concerns from uses of derivatives in ALM
– Managing cost-to-close exposure
Team work: short Excel exercises and case studies.
Optional specialized module: consumer financial products in ALM
– The role of retail and commercial deposits in ALM
– Estimating deposit run-off, elasticity and liquidity impacts
– Structuring, pricing and marketing various types of deposits in ALM
– Characteristics of structured products, insurance and other alternative consumer products
– Organizational interactions of consumer products businesses in ALM
– Transfer pricing policies of consumer funding to treasury
Team work: short Excel exercises and case studies.
Individual evening work
Day 2
Statistical techniques in ALM
– Review of basic statistical distributions, moments and techniques used in modeling
– Measuring risks with standard parametric approaches
– Value at Risk (VaR) techniques
– Advantages and limitations of VaR
– Correlated modeling of risk in ALM
– Measuring risks with Monte Carlo simulation techniques
– Building non-standard Monte Carlo risk modeling
Market risks in asset portfolios and ALM
– Trading, available for sale and investment portfolios in various types of financial institutions
– Portfolio mean – variance metrics and controls
– Risks in bonds and fixed income portfolios
– Duration, DV01, convexity, VaR and other analytical frameworks for fixed income
– Risks in:
– Commercial and retail mortgages, MBS and sub-prime portfolios
– Off-balance sheet commitments and contingencies
– Derivatives portfolios
– Credit card portfolios and various ABS products
– Equity portfolios and equity arbitrage strategies
– Specific risks in portfolios of corporate bonds and equities
– Understanding equity beta and alpha in ALM context
– Establishing policies and controls for market risks
Team work: short Excel exercises and case studies.
Credit risks in asset portfolios and ALM
– Credit risks in commercial / retail loans, credit risky bonds and derivatives
– Interpreting and using credit spreads
– Expected and unexpected credit losses
– Credit risk metrics: Probability of Default (PD), Exposure at Default (EAD), Loss Given Default (LGD) and credit correlation
– The linkage of PD, EAD and LGD to credit spreads
– Default intensities and migrations
– Estimating recovery rates and LGD from real-world experience
– Estimating default probabilities from current market data
– Real-world vs. risk-neutral default probabilities
– Estimating and using credit value at risk in ALM frameworks
– Establishing policies and controls for credit portfolio risks
Team work: short Excel exercises and case studies.
Optional specialized module: ALM risks in alternative investments
– Structured investment products
– Capital guaranteed notes
– Overview of CDO products
– Constant Proportional Portfolio Insurance (CPPI) and CPDO products
– Arbitrage portfolios
– Recent challenges from Special Investment Vehicles (SIVs)
– Liquidity and other concerns in alternative investments
Team work: short Excel exercises and case studies.
Individual evening work
Day 3
Credit portfolio risk management techniques in ALM
– Benefits and challenges of active credit portfolio risk management
– Credit structuring alternatives as ALM risk mitigants
– Using credit derivatives to manage and / or securitize credit risk
– Review of Credit Default Swaps (CDS), credit linked notes and other credit derivatives products
– CDS pricing and mark-to-market valuation
– Comparing and contrasting credit swaps and securitized CDO / CLOs / CBOs
– CDS and cash / hybrid CDO / CLO / CBP product strategies in ALM portfolio management
– Overview of copula techniques models and their applications in pricing correlation in ALM
Team work: short Excel exercises and case studies.
Operational risks in ALM
– Operational risk management framework in ALM
– Evidence of operational failures
– Key components of operational risk
– Specific tools and models for operational risks in ALM
– Operational value-at-risk
– Operational risk transfer techniques
Team work: short Excel exercises and case studies.
Financing strategies in ALM
– Defining the mix of financing of alternatives
– The relationship of financing vs. capital
– Developing and maintaining financial market access
– Measuring costs of financing alternatives
– Framework for optimizing financing choices
– Managing liquidity and maturity profile
– Maintaining desired rating and financial flexibility
– Market risks inherent in financing choices
– Use of derivatives in financing strategies
– Securitization and credit enhancement financing strategies
– Impact of regulatory capital requirements on financing strategies
Team work: short Excel exercises and case studies.
Optional specialized module: strategic ALM products and techniques
– Liability-driven investment strategies
– Structured investment products as strategic ALM
– Opportunities for structured financing products and strategies
– Off-balance sheet and special purpose vehicle financing
Team work: short Excel exercises and case studies.
Individual evening work
Day 4
ALM and liquidity
– What can go wrong in liquidity management
– Examples and lessons of recent liquidity challenges
– Linkages of liquidity risks to market, credit and operations risks
– Developing policies and controls on liquidity risk management
– Elements of liquidity contingency planning
– The role of ALM in liquidity management
Team work: short Excel exercises and case studies.
ALM and regulatory capital
– The regulatory environment for financial institutions
– The impacts of Basel II on the practice of ALM
– Linkage of regulatory capital to risk portfolios
– Regulatory capital mitigation strategies
– Regulatory impact of financing and capital decisions
– Relationship of regulatory capital and economic capital
Team work: short Excel exercises and case studies.
ALM and financial performance
– Balancing financial performance targets within risk management policies and controls
– Developing acceptable business and entity-wide risk profiles
– Measuring risk-adjusted financial performance
– Returns on economic capital
– Efficient employment and allocation of capital
– The role of ALM in the deployment, management and conservation of capital
Team work: short Excel exercises and case studies.
COURSE SUMMARY AND CLOSE