Introduction

Abstract

Asset and liability management (ALM) is a financial (analytic) tool for decision making that sets out to maximize stakeholder value. Its overall objective is to make judicious investments that increase the value of capital, match liabilities and protect from disastrous financial events. An integrated asset and liability management model sets out to find the optimal investment strategy by consid-ering assets and liabilities simultaneously. Simply stated, the purpose of such an approach is to reduce risk and increase returns; ALM models have been used successfully for banks, pension funds and insurance companies, univer-sity endowments, hedge funds, mutual funds and wealthy individuals. Risks that can be addressed are interest rate risk, market risk, credit risk, liquidity risk and financial risk. In effect, a financial institution that applies ALM can oper-ate more soundly and profitably. The decision maker under the ALM approach needs to have a good understanding of the financial markets in which the institution operates. ALM is interpreted differently among practitioners from different sectors.KeywordsMutual FundPension FundHedge FundAsset AllocationPension SchemeThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.