Introduction to Asset Liability Management

Day 1 - Concepts Building of Asset Liability Management
 Introduction to Asset Liability Management
 Definition of asset liability management
 Scope of asset liability management
 Objectives of asset liability management
 Growing importance of asset liability management
 Who does asset liability management
 Types of institutes benefits from asset liability management
 Asset Liability Structure of Commercial Banks
 Understanding a bank’s balance sheet
 Assets
 Liabilities
 Capital
 Exercises
 Understanding a bank’s income statement
 Interest income
 Non-interest income
 Interest expense
 Non-interest expense
 Exercises
 Off balance sheet information
 Non financial information
 Case studies
 Exercises
 Major Types of Risk That Influence Commercial Banks
 Credit risk
 Market risk
 Liquidity risk
 Operational risk
 Legal risk
 Regulation risk
 Interest rate risk
 Exercises
 Forces determining interest rates
 The management of interest rates
 The components of interest rates
 Responses to interest rate risk
 Exercises
 The Term Structure of Interest Rate
 The yield curve
 The typical shape of the yield curve
 Types of yield curve
 Normal yield curve
 Steep yield curve
 Flat or humped yield curve
 Inversed yield curve
 Yield curve theories
 Expectation theory
 Market segmentation theory
 Liquidity preference theory
 Preferred habitat theory
 Historical development theory
 Exercises
 Case studies
 Asset Liability Strategies
 Asset management strategy
 Liability management strategy
 Fund management strategy
 Exercises
 Case study

Day 2 - Gap Analysis, Duration, Convexity and Simulation
 Gap Analysis
 Objectives of gap analysis
 Cumulative gap
 Types of gap
 Gap analysis report
 Steps in preparing of gap report
 Assets and liabilities included in a gap report
 Handling an amortizing loan a gap report
 Handling a zero coupon securities a gap report
 Handling a pre payments in a gap report
 Handling off balance sheet items in a gap report
 Handling a multi currency balance sheet items in a gap report
 Considerations in slotting different items in a gap report
 Exercises
 Limitations of gap analysis
 Advantages of gap analysis
 Gap analysis strategies
 Asset restructuring strategy
 Liability restructuring strategy
 Growth strategy
 Shrinking strategy
 Off balance sheet strategy
 Exercises
 Case studies
 Duration
 Interpretation of duration
 Duration of perpetual bond
 Duration of a bond with embedded options
 Duration of a portfolio
 Duration of off balance sheet items
 Duration of equity
 Duration of a complex items
 Duration strengths
 Duration weaknesses
 Exercises
 Convexity
 Definition of convexity
 Convexity calculations
 Convexity and yields
 Convexity of a portfolio
 Exercises
 Simulation
 Definition of simulation
 Simulation techniques
 Simulation inputs
 Simulation output
 Advantages of simulation analysis
 Disadvantages of simulation analysis
 Scenario analysis
 Exercises

Day 3 - Using Derivatives in Asset Liability Management
 Financial Futures
 Definition of financial futures
 Characteristics of financial futures
 Speculation versus hedging
 Micro hedging applications
 Macro hedging applications
 Short hedging
 Long hedging
 Exercises
 Interest Rates Options
 Using Forward Rate to Manage Interest Rate Risk
 Using Interest Rate Swaps
 Caps
 Floors
 Callers

Day 4 – Value at Risk
 Definition
 Objectives
 Standard normal distribution
 Volatility vs. standard deviation
 Volatility of interest rates
 Value at risk for foreign currency spot position
 Value at risk for foreign currency option
 Value at risk for common share
 Value at risk for fixed income securities
 Value at risk for a portfolio
 Applications of value at risk
 Exercises

Day 5 – Risk Management
 Risk Management Using Asset Backed Securities
 The beginning of securitization- the home mortgage market
 Examples of other assets that have been securitized
 Regulators concerns about securitization
 Risk Management Using Loan Sales
 Reasons behind loan sales
 The risk in loan sales
 Exercises
 Risk Management Using Credit standbys
 The structure of the standbys credit letters
 The value and pricing of standby letters
 Sources of risk with standbys
 Regulatory concerns about the standby credit letters
 Exercises
 Risk Management Using Credit Derivatives
 Credit swaps
 Credit options
 Credit default swaps
 Credit linked notes
 Collateralized debt obligations
 Risk associated with credit derivatives
 Case studies
 Exercises
 Final exam