Asset-Liability and Liquidity Management

Asset-Liability and Liquidity Management

by Pooya Farahvash
Released June 2020
Publisher(s): Wiley
ISBN: 9781119701880

Read it now on the O’Reilly learning platform with a 10-day free trial.

O’Reilly members get unlimited access to books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.

Start your free trial

Book description

Asset-Liability and Liquidity Management distils the author’s extensive experience in the financial industry, and ALM in particular, into concise and comprehensive lessons. Each of the topics are covered with a focus on real-world applications, based on the author’s own experience in the industry.

The author is the Vice President of Treasury Modeling and Analytics at American Express. He is also an adjunct Professor at New York University, teaching a variety of analytical courses.

Learn from the best as Dr. Farahvash takes you through basic and advanced topics, including:

  • The fundamentals of analytical finance
  • Detailed explanations of financial valuation models for a variety of products
  • The principle of economic value of equity and value-at-risk
  • The principle of net interest income and earnings-at-risk
  • Liquidity risk
  • Funds transfer pricing

A detailed Appendix at the end of the book helps novice users with basic probability and statistics concepts used in financial analytics.

Table of contents

  1. Cover
  2. About the Author
  3. Preface
  4. Abbreviations
  5. Introduction
    1. ASSET-LIABILITY MANAGEMENT METRICS
    2. ALM RISK FACTORS
    3. ORGANIZATION OF THIS BOOK
  6. CHAPTER 1: Interest Rate
    1. INTEREST RATE, FUTURE VALUE, AND COMPOUNDING
    2. ACCRUAL AND PAYMENT PERIODS
    3. PRESENT VALUE AND DISCOUNT FACTOR
    4. DAY COUNT AND BUSINESS DAY CONVENTIONS
    5. TREASURY YIELD CURVE AND ZERO-COUPON RATE
    6. LIBOR
    7. FORWARD RATES AND FUTURE RATES
    8. SWAP RATE
    9. INTERPOLATION METHODS
    10. FEDERAL FUNDS AND PRIME RATES
    11. OVERNIGHT INDEX SWAP RATE
    12. COMPONENTS OF INTEREST RATE
    13. NEGATIVE INTEREST RATE
    14. INTEREST RATE SHOCK
    15. INTEREST RATE RISK
    16. SUMMARY
    17. NOTES
    18. BIBLIOGRAPHY
  7. CHAPTER 2: Valuation: Fundamentals of Fixed-Income and Non-Maturing Products
    1. PRINCIPAL AMORTIZATION
    2. FIXED-RATE INSTRUMENT
    3. FLOATING-RATE INSTRUMENT
    4. NON-MATURING INSTRUMENT
    5. INCLUSION OF PREPAYMENT AND DEFAULT: A ROLL FORWARD APPROACH
    6. SUMMARY
    7. NOTES
    8. BIBLIOGRAPHY
  8. CHAPTER 3: Equity Valuation
    1. DIVIDEND DISCOUNT MODEL
    2. DISCOUNTED FREE CASH FLOW METHOD
    3. COMPARATIVE VALUATION USING PRICE RATIOS
    4. SUMMARY
    5. NOTE
    6. BIBLIOGRAPHY
  9. CHAPTER 4: Option Valuation
    1. STOCK OPTION
    2. BOUNDARY VALUES
    3. PUT–CALL PARITY
    4. BINOMIAL TREE
    5. THE BLACK–SCHOLES–MERTON MODEL
    6. OPTION VALUATION USING MONTE CARLO SIMULATION
    7. SENSITIVITY OF OPTION VALUE
    8. VOLATILITY
    9. OPTION VALUATION USING A GARCH MODEL
    10. FUTURES OPTIONS
    11. SUMMARY
    12. ANNEX 1: DERIVATION OF PUT–CALL PARITY WHEN THE UNDERLYING PAYS DIVIDENDS
    13. ANNEX 2: DERIVATION OF DELTA, GAMMA, VEGA, RHO, AND THETA
    14. NOTES
    15. BIBLIOGRAPHY
  10. CHAPTER 5: Interest Rate Models
    1. INSTANTANEOUS FORWARD RATE AND SHORT RATE
    2. VASICEK MODEL
    3. HULL-WHITE MODEL
    4. HO-LEE MODEL
    5. BLACK-KARASINSKI MODEL
    6. INTEREST RATE OPTIONS
    7. ANALYTICAL VALUATION OF BONDS AND OPTIONS
    8. INTEREST RATE TREE
    9. CALIBRATION
    10. LIBOR MARKET MODEL
    11. SUMMARY
    12. ANNEX: DERIVATION OF ZERO-COUPON BOND PRICE USING A -PERIOD RATE FROM THE HULL-WHITE TREE
    13. NOTES
    14. BIBLIOGRAPHY
  11. CHAPTER 6: Valuation of Bonds with Embedded Options
    1. CALLABLE BOND
    2. PUTABLE BOND
    3. SUMMARY
    4. NOTE
    5. BIBLIOGRAPHY
  12. CHAPTER 7: Valuation of Mortgage-Backed and Asset-Backed Securities
    1. MORTGAGE-BACKED SECURITIES
    2. COLLATERALIZED MORTGAGE OBLIGATIONS
    3. ASSET-BACKED SECURITIES
    4. SUMMARY
    5. ANNEX: DERIVATION OF SURVIVAL FACTOR
    6. NOTES
    7. BIBLIOGRAPHY
  13. CHAPTER 8: Economic Value of Equity
    1. ECONOMIC VALUE OF EQUITY: BASICS
    2. DURATION GAP
    3. RISK-ADJUSTED YIELD CURVE
    4. INTEREST RATE SCENARIO ANALYSIS
    5. CURRENCY EXCHANGE RATE SCENARIO ANALYSIS
    6. ECONOMIC VALUE OF EQUITY RISK LIMITS
    7. BALANCE SHEET PLANNING AND EVE FORECASTING
    8. BASEL ACCORD GUIDANCE ON EVE ANALYSIS
    9. SUMMARY
    10. NOTES
    11. BIBLIOGRAPHY
  14. CHAPTER 9: Net Interest Income
    1. INTEREST INCOME AND EXPENSE: BASICS
    2. INTEREST INCOME AND EXPENSE FOR FLOATING-RATE INSTRUMENTS
    3. INCORPORATING BALANCE SHEET CHANGE IN NII ANALYSIS
    4. EARNING GAP
    5. INTEREST RATE SCENARIO ANALYSIS
    6. IMPACT OF INTEREST RATE OPTIONS ON NII
    7. CURRENCY EXCHANGE RATE SCENARIO ANALYSIS
    8. NET INTEREST INCOME HEDGING
    9. NET INTEREST INCOME RISK LIMITS
    10. REQUIRED DATA AND OTHER CONSIDERATIONS IN NII ANALYSIS
    11. BASEL ACCORD GUIDANCE ON NII ANALYSIS
    12. SUMMARY
    13. NOTES
    14. BIBLIOGRAPHY
  15. CHAPTER 10: Equity and Earnings at Risk
    1. INTRODUCTION TO VALUE-AT-RISK
    2. APPLICATION OF VAR METHODOLOGY IN ALM
    3. SCENARIO GENERATION
    4. EQUITY-AT-RISK
    5. SAMPLE SIZE AND CONVERGENCE
    6. EARNINGS-AT-RISK
    7. SUMMARY
    8. NOTES
    9. BIBLIOGRAPHY
  16. CHAPTER 11: Liquidity Risk
    1. FUNDING SOURCE AND LIQUIDITY RISK
    2. SHORT-TERM SECURED FUNDING: REPURCHASE AGREEMENTS
    3. REPO AND LIQUIDITY RISK
    4. CASH FLOW GAP ANALYSIS AND LIQUIDITY STRESS TESTS
    5. FUNDING CONCENTRATION RISK
    6. BASEL ACCORD LIQUIDITY RISK MONITORING TOOLS
    7. EARLY WARNING INDICATORS
    8. LIQUIDITY CONTINGENCY PLAN
    9. SUMMARY
    10. NOTES
    11. BIBLIOGRAPHY
  17. CHAPTER 12: Funds Transfer Pricing
    1. FUNDS TRANSFER PRICING: BASICS
    2. POOL METHOD
    3. MATCHED MATURITY METHOD
    4. COMPONENTS OF FTP RATE
    5. CHARACTERISTICS OF A GOOD FTP SYSTEM
    6. SUMMARY
    7. NOTES
    8. BIBLIOGRAPHY
  18. Appendix: Elements of Probability and StatisticsAppendix: Elements of Probability and Statistics
    1. RANDOM VARIABLES
    2. DISTRIBUTION FUNCTION
    3. EXPECTATION AND VARIANCE
    4. MEDIAN AND MODE
    5. PERCENTILE
    6. COVARIANCE AND CORRELATION
    7. CONDITIONAL EXPECTATION AND CONDITIONAL VARIANCE
    8. BINOMIAL DISTRIBUTION
    9. NORMAL DISTRIBUTION
    10. LOGNORMAL DISTRIBUTION
    11. MULTIVARIATE NORMAL DISTRIBUTION
    12. SAMPLING
    13. PARAMETER ESTIMATION
    14. PRINCIPAL COMPONENT ANALYSIS
    15. STOCHASTIC PROCESS
    16. NOTES
    17. BIBLIOGRAPHY
  19. Index
  20. End User License Agreement

Product information

  • Title: Asset-Liability and Liquidity Management
  • Author(s): Pooya Farahvash
  • Release date: June 2020
  • Publisher(s): Wiley
  • ISBN: 9781119701880