Asset And Liability Management Research Articles

Studi Literatur: Pengaruh Asset And Liabilities Management Terhadap Perbankan

This study describes Asset Liability Management of the Company through surveyed journals in Indonesia from 2017 to 2022. The purpose of this study is to add and develop research or articles on Asset and Liability Management (ALMA) published in Indonesian journals. The samples obtained were 25 articles. This research uses a systematic literature study method, with a PoP (Publish or Perish) application. From this literature study, we conclude that the operation of the Asset and Liability Management (ALMA) function can optimize the structure of a bank's balance sheet in a competitive financial market environment through bank liquidity management policies while maintaining quota and liquidity status. These include primary and secondary reserves, gap management by managing and controlling the gap between assets and liabilities to maximize net profit margin (NIM), exchange rate management by maximizing exchange rate differential returns, investment management and returns through investment decisions in a bank's fortopolio.

Application of the Concept of Asset and Liability Management (ALMA) in the Islamic Banking System

This study discusses the application of the concept of asset and liability management (ALMA) in the banking system. The method used in this research is library research with a qualitative approach, where the data are obtained from books, journals, articles and the like that discuss the theme. After that, it was validated, and analyzed descriptively. The results of this study are: Application of Asset and Liability Management in banking institutions, both Islamic banks and conventional banks must go through an assessment of the budget, make income plans, evaluate investment performance in the past, unify the distribution of bank assets and liabilities and implement asset and financial strategies obligation

Solving a fractional programming problem in a commercial bank

<p style='text-indent:20px;'>We formulate a new optimization problem which arises in the Bank Asset and Liability Management (ALM). The problem is a fractional programming which belongs to a class of global optimization. Most of optimization problems in the Bank Asset and Liability Management are return maximization or risk minimization problems. For solving the fractional programming problem, we propose curvilinear multi-start algorithm which finds the best local solutions to the problem. Numerical results are given based on the balance sheets of 5 commercial banks of Mongolia.</p>

Scenario Generation for Asset and Liability Management Models Applied to a Saudi Arabian Pension Fund

In Asset and Liability Management (ALM) models, there are parameters whose values are not known with certainty at decision time, such as future asset returns, liability and contribution values. Simulation models generate possible “scenarios” for these parameters, which are used as inputs in the optimisation models and help thus in making decisions. These decisions can be evaluated in the sample, on the same scenarios that were used for making the decision, and out-of-sample, on a different, usually much larger, scenario set. With asset return simulation, the major difficulty lies in the multivariate nature of the data. We propose to capture this via the historical copula, making thus no distributional assumptions. We suggest the use of univariate sample generation which allows for different asset returns to be modelled by different distributions. The liabilities and contributions values have as a main source of uncertainty the population numbers; we propose to model this by adapting a model used in biology (BIDE). We use the resulting scenario generator in four different ALM optimisation models, using a dataset from the largest Saudi Arabian pension fund and the Saudi Arabian market index.

Peer Preference and Asset-Liability Management in InsurTech Market

Technology advances have enhanced competition in insurance industry. This paper investigates a class of dynamic asset and liability management(ALM) game among mean-variance insurers with relative log return performance. We obtain the unique explicit time-consistent equilibrium ALM strategies for both the finite non-zero-sum game and mean field game, respectively. The results show that competition leads the increases of insurers’ risky asset investment and the insurance liability. The equilibrium solution implies that “social util- ity”(relative concerns) leads to “social learning”(herd effect) in the complete information market. In particular, the peer relative concern can induce preference interaction. Finally, we find the Granger causal relationship between industry competition and herd behavior in the empirical data and conduct sensitivity analysis of the competition outcome with respect to the estimated risk parameters.

Evaluation Period and Agency Problem in Outsourced Chief Investment Officer (OCIO)

This article investigates the effect of the performance evaluation period on the long-term investment portfolio choice and the agency problem of outsourced investments. Though investors with the prospect utility are required to raise the portfolio weight on risky assets such as stocks for a long investment horizon, institutional investors and professional fund managers cannot help lowering the portfolio weight on risky assets to minimize the loss and to avoid disappointing clients with a short evaluation period. We find empirical evidence in the Korean capital market that stocks and bonds are indifferent to investors with the prospect utility for an evaluation period with 16 months and the optimal portfolio weight of stocks and bonds is 30% to 70%. Therefore there exists the agency problem between investors (principal) and managers (agent) due to frequent performance evaluations, which is able to explain current excessive investment in fixed income markets of most national pension funds. Our result implies that we need to consider extending the evaluation period of the investment performance to achieve the goal of asset and liability management (ALM) of national long-term funds in this low-interest-rate environment.

Sovereign Wealth Fund Asset and Liability Management by Rastin Banking Financial Instruments (Rastin Certificates and Rastin Swap Bonds)

Low rate of return of National Development Fund (NDFI) resources and the concern regarding Sovereign Wealth Funds (SWFs) motivations and incentives to distort financing toward those investments and companies that are influenced by different political pressure groups and other types of corruptions are important problems with these funds.We try to propose a different financing procedure by using Rastin Banking mechanism and standards to fulfill both non-usury financial operations and fruitful supervised investments. This goal is achieved through Rastin Profit and Loss Sharing (PLS) system through Rastin Certificates financial instruments. Moreover, the governments operationally construct SWFs to use their surplus resources of the prosperity period in recession and crises years. We also show that Asset and Liability Management (ALM) of SWFs can be done by using Rastin Swap Bonds (RSBs) that are other Rastin Banking financial instruments.The proposed procedures positively improve NDFI regarding corruption reduction, supervision, preventing usury, availability of resources, funds stability, transactable instruments, operational ALM, rate of return, risk of bad loans, outstanding claims and transparency.

The role of a reference yield fitting technique in the fund transfer pricing mechanism

The funds transfer pricing (FTP) structure has become a base for the process of asset and liability management (ALM) in a modern bank. According to the supervisory documents, FTP is thus a regulatory constraint and an important tool in the ALM process. What is more institutions should have an adequate internal transfer pricing mechanism based on reference rate delivered from the market in a form of the yield curve. The fragility and sensitivity of the reference yield in time could have huge consequences for the liquidity risk management process.

ON INTEGRATED CHANCE CONSTRAINTS IN ALM FOR PENSION FUNDS

AbstractWe discuss the role ofintegrated chance constraints(ICC) as quantitative risk constraints in asset and liability management (ALM) for pension funds. We define two types of ICC: theone periodintegrated chance constraint (OICC) and themultiperiodintegrated chance constraint (MICC). As their names suggest, the OICC covers only one period, whereas several periods are taken into account with the MICC. A multistage stochastic linear programming model is therefore developed for this purpose and a special mention is paid to the modeling of the MICC. Based on a numerical example, we first analyze the effects of the OICC and the MICC on the optimal decisions (asset allocation and contribution rate) of a pension fund. By definition, the MICC is more restrictive and safer compared to the OICC. Second, we quantify this MICC safety increase. The results show that although the optimal decisions from the OICC and the MICC differ, the total costs are very close, showing that the MICC is definitely a better approach since it is more prudent.

A Stochastic Approach to the Measurement of Interest Rate Risk in the Banking Book

Interest rate risk of a financial position is the potential loss in value arising from adverse movements of the interest rate term structure. Banks calculate rough measures of interest rate risk in their banking book (IRRBB) as imbalance between changes in value of their financial assets and liabilities in response to hypothetical shocks of default-free interest rate curve. This method leaves unresolved at least two fundamental issues. Firstly, yield curve shocks defined by regulators and applied as standard scenarios by all banks remain largely judgmental; this induces scarce reliability on interest rate risk measures, generally calculated for regulatory compliance purposes and broadly unused in risk management practices. Secondly, the most common systems for asset and liability management (ALM) neglect the fact that the fair value of credit risky financial instruments reacts not only in response to interest rate shocks, but it is also sensitive to credit spread fluctuations. For decades, an improbable parallel raise of default-free interest rate curve has been considered as a standard scenario in almost all systems for ALM. Though this assumption is commonly deemed unrealistic and objectively incapable to deliver a meaningful appraisal of IRRBB, it has been widely used for the sole purpose of giving monetary dimension to the duration-gap between assets and liabilities that ended up being the unique determinant of IRRBB measure. In recent years, with the objective to increase the consistency of interest rate risk measures and inform decision processes inside banks in a correct manner, regulators and practitioners expanded the range of simulated interest rate shocks by including negative shocks and non-parallel shifts of the interest rate curve. Nevertheless, these solutions must be considered largely misleading since a whatever interest rate scenario always results from a discretionary decision of supervisors or banks. Past experience suggests that deterministic approaches, although based on some mathematical method, inevitably result in unreliable potential loss estimates and large fluctuations of IRRBB measures over time. In this article, we explore the possibility of using Monte Carlo simulation in order to identify firm specific adverse interest rate shocks and define the frequency distribution of delta values of the banking book. The generation of a wide range of interest rate shocks, combined with common techniques for ALM, produces consistent measures of IRRBB. A multivariate stochastic process, compliant with option pricing theories, is completely fed by market data.

Asset liability management for open pension schemes using multistage stochastic programming under Solvency-II-based regulatory constraints

Open private pension schemes are subject to risk-based regulation. In this context, asset and liability management (ALM) frameworks for pension plan operators are increasingly based on multistage stochastic programming (MSP). The significant advances in MSP modeling notwithstanding, previous works ignore risk-based regulatory constraints such as those in the Solvency II Directive. In this work, we propose an ALM model for open pension schemes based on an MSP model with a thorough representation of a risk-based regulation. Our proposal aims to define a dynamic optimal asset allocation including a detailed depiction of bond coupon payments, based on insolvency risk measures over a planning horizon. We present a realistic case study based on the Brazilian market, where the regulator imposes Solvency-II-compatible constraints on credit, underwriting, and operational risks. We develop a computationally tractable MSP model with explicit regulatory constraints, which induce risk aversion for even risk-neutral open pension plan operators.

Funds Transfer Pricing, Liquidity Premium and Market Structure

Funds transfer pricing (FTP) is widely acknowledged as an important part of banks’ asset and liability management (ALM). This paper makes two contributions to the existing FTP-theory. First, we analyze the implications of adding a liquidity premium to the FTP. Second, since a majority of the existing banking markets are dominated by a limited number of large banks we also cover the case of kinked demand and supply curves on oligopolistic and oligopsonistic competition, respectively.

Effective Strategies for Assets and Liabilities Management

This paper contains facts and introductory concepts on Asset and Liability Management, Funds Transfer Pricing Systems and Funding Costs. Banks, hedge funds and more generally finance companies engage in complex capital market activities that involve trading of instruments in derivative or cash forms. All these activities contribute to the company's asset and liability profile and the ability to manage well such a profile is crucial to the success of a business. The paper aims to introduce a number of definitions and market practices that are fundamental for an effective asset and liability management (ALM) strategy. It provides examples of a practically feasible ALM strategy with some stylized features in the data. The reader can make use of the proposed ALM strategies to build more complex management approaches.

Financial Crisis, SWF Investing, and Implications for Financial Stability

AbstractThe recent global financial crisis has significantly affected sovereign wealth funds’ (SWFs’) financial performance and their investment activities. The crisis shed a new light on SWFs’ objectives and priorities. SWFs need to review critically their strategic asset allocation (SAA) within a sovereign asset and liability management (ALM) framework, and their assets should be analyzed over complete economic cycles including market turbulences. The crisis raises also the question of whether some of the underlying objectives of the Santiago Principles—maintaining a stable global financial system and maximizing financial returns—are perhaps conflicting. We argue that any conflict was from a wrong interpretation of the principles, not from the principles themselves. Ultimately, stable financial markets are in each SWF’s self interest, also from a narrow financial perspective. In this respect, financial stability and financial risk/return can be mutually reinforcing objectives rather than conflicting.

Alternative decision models for liability-driven investment

Traditional Asset and Liability Management (ALM) models have been recently recast as Liability-Driven Investment (LDI) models for making integrated finan-cial decisions in pension schemes investment: matching and outperforming liabilities. LDI has become extremely popular as the decision tool of choice for pension funds. The last decade experienced a fall in the equity markets, while bond yields reached low levels. The UK Accounting standard FRS17 (since 2001, replacing SSAP24) requires the assets to be measured by their market value and liabilities to be measured by a projected unit method and a discount rate reflecting the market yields then available on AA rated corporate bonds of appropriate currency and term. When these new regulations were introduced, liabilities became harder to meet. In the case of a deficit, the pension fund trustees and employers have to agree on extra contributions to fill the deficit within 10 years time. Furthermore, deficit or surplus has to be fully included on the balance sheet of the sponsoring company. In the Netherlands and the Nordic countries, LDI models have become established (see C. Dert, 1995 and Drijver, 2005); the United Kingdom, Italy and a few other European countries are close followers of this trend. Traditionally, assets and liabilities were con-sidered separate. In asset management, the aim was to maximize return for a given risk level. However, the matching of the liabilities was not taken into consideration. The main argument was that assets should be made to grow faster than liabilities. The modern integrated approach to LDI considers the cash flow streams for invested assets of fixed-income portfolios enhanced by interest rate swaps and in some cases of swaptions.

Public Debt Sustainability and Management in a Compound Option Framework

This paper introduces the Asset and Liability Management (ALM) compound option model. The model builds on the observation that the public sector net worth in a multi-period setting corresponds to the value of an option on an option on total government assets. Hence, the ALM compound option model is better suited for analyzing and evaluating the risk profile of public debt than existing one-period models, and is especially useful for analyzing the soundness of exit strategies from the large fiscal expansions undertaken by G-20 countries in the wake of the recent financial crisis. As an illustration, the model is used to analyze the risk profile and sustainability of Australia's public debt under different policies.

Public Debt Sustainability and Management in a Compound Option Framework

This paper introduces the Asset and Liability Management (ALM) compound option model. The model builds on the observation that the public sector net worth in a multi-period setting corresponds to the value of an option on an option on total government assets. Hence, the ALM compound option model is better suited for analyzing and evaluating the risk profile of public debt than existing one-period models, and is especially useful for analyzing the soundness of exit strategies from the large fiscal expansions undertaken by G-20 countries in the wake of the recent financial crisis. As an illustration, the model is used to analyze the risk profile and sustainability of Australia's public debt under different policies.

Public Debt Sustainability and Management in a Compound Option Framework

This paper introduces the Asset and Liability Management (ALM) compound option model. The model builds on the observation that the public sector net worth in a multi-period setting corresponds to the value of an option on an option on total government assets. Hence, the ALM compound option model is better suited for analyzing and evaluating the risk profile of public debt than existing one-period models, and is especially useful for analyzing the soundness of exit strategies from the large fiscal expansions undertaken by G-20 countries in the wake of the recent financial crisis. As an illustration, the model is used to analyze the risk profile and sustainability of Australia's public debt under different policies.

Integrating market and credit risk: A simulation and optimisation perspective

We introduce a modelling paradigm which integrates credit risk and market risk in describing the random dynamical behaviour of the underlying fixed income assets. We then consider an asset and liability management (ALM) problem and develop a multistage stochastic programming model which focuses on optimum risk decisions. These models exploit the dynamical multiperiod structure of credit risk and provide insight into the corrective recourse decisions whereby issues such as the timing risk of default is appropriately taken into consideration. We also present an index tracking model in which risk is measured (and optimised) by the CVaR of the tracking portfolio in relation to the index. In-sample as well as out-of-sample (backtesting) experiments are undertaken to validate our approach. The main benefits of backtesting, that is, ex-post analysis are that (a) we gain insight into asset allocation decisions, and (b) we are able to demonstrate the feasibility and flexibility of the chosen framework.

Asset and liability management in financial crisis

PurposeAn efficient asset‐liability management requires maximizing banks' profit as well as controlling and lowering various risks. This multi‐objective decision problem aims to reach goals such as maximization of liquidity, revenue, capital adequacy, and market share subject to financial, legal requirements and institutional policies. This paper models asset and liability management (ALM) in order to show how different managerial strategies affect the financial wellbeing of banks during crisis.Design/methodology/approachA goal programming model is developed and applied to two medium‐scale Turkish commercial banks with distinct risk‐taking behavior. This article brings new evidence on the performance of emerging market banks with different managerial philosophies by comparing asset‐liability management in crisis.FindingsThe study has shown how shifts in market perceptions can create trouble during crisis, even if objective conditions have not changed.Originality/valueThe proposed model can provide optimal forecasts of asset‐liability components and banks' financial standing for different risk‐taking strategies under various economic scenarios. This may facilitate the preparation of contingency plans and create a competitive advantage for bank decision makers.