Asset-Liability and Liquidity Management - Farahvash, Pooya

Résumé :

Learn the essentials of Asset-Liability Management, Liquidity Risk, and Funds Transfer Pricing

Many financial institutions and professionals must familiarize themselves with numerous concepts to successfully optimize risk management. ALM, FTP, and Liquidity Risk are among the more significant. It's specifically important to understand the step-by-step process of executing ALM analysis. Balance sheet risk management remains a core topic for everyone from internal risk management teams to external regulators.

Luckily, Asset-Liability and Liquidity Management makes understanding these topics easier than ever. Author Pooya Farahvash has substantial experience applying them in his own career. Having worked in asset-liability management and modeling at major financial institutions, Dr. Farahvash has the expertise necessary to explain everything a reader needs to know about these concepts, as well as why they are important and how they may be applied in a practical setting.

It's crucial that risk management professionals at financial institutions understand these ideas. Asset-Liability and Liquidity Management ensures its readers do....

Biographie:

About the Author xvii

Preface xix

Abbreviations xxiii

Introduction 1

Asset-Liability Management Metrics 5

ALM Risk Factors 7

Organization of This Book 8

Chapter 1 Interest Rate 17

Interest Rate, Future Value, and Compounding 18

Use of Time Notation versus Period Notation 22

Simple Interest 23

Accrual and Payment Periods 24

Present Value and Discount Factor 29

Present Value of Several Cash Flows 32

Present Value of Annuity and Perpetuity 33

Day Count and Business Day Conventions 34

Treasury Yield Curve and Zero-Coupon Rate 40

Bootstrapping 43

LIBOR 48

Forward Rates and Future Rates 49

Implied Forward Rates 50

Forward Rate Agreements 55

Interest Rate Futures 56

Swap Rate 58

Determination of the Swap Rate 61

Valuation of Interest Rate Swap Contracts 66

LIBOR-Swap Spot Curve 70

Interpolation Methods 75

Piecewise Linear Interpolation 76

Piecewise Cubic Spline Interpolation 78

Federal Funds and Prime Rates 84

Overnight Index Swap Rate 87

OIS Discounting 88

Secured Overnight Financing Rate 94

Components of Interest Rate 95

Risk Structure of Interest Rate 97

Term Structure of Interest Rate 98

Expectation Theory 100

Market Segmentation Theory 102

Liquidity Premium Theory 102

Inflation and Interest Rate 102

Negative Interest Rate 103

Interest Rate Shock 105

Parallel Shock 106

Non-Parallel Shock 107

Interest Rate Risk 109

Summary 110

Notes 112

Bibliography 114

Chapter 2 Valuation: Fundamentals of Fixed-Income and Non-Maturing Products 115

Principal Amortization 116

Bullet Payment at Maturity 116

Linear Amortization 117

Constant Payment Amortization 118

Sum-of-Digits Amortization 121

Custom Amortization Schedule 123

Fixed-Rate Instrument 124

Valuation 124

Yield 130

Duration and Convexity 133

Dollar Duration and Dollar Convexity 142

Portfolio Duration and Convexity 143

Effective Duration and Effective Convexity 144

Interest Rate Risk Immunization 145

Key Rate Duration 155

Fisher-Weil Duration 156

Key Rate Duration 160

Floating-Rate Instrument 165

Pre-Period-Initiation Rate Setting 166

Post-Period-Initiation Rate Setting 166

Valuation Using Estimated Interest Rates at Future Reset Dates 168

Using Implied Forward Rate 168

Using Forecasted Rate 171

Valuation Using Assumption of Par Value at Next Reset Date 177

Duration and Convexity 182

Valuation Using Simulated Interest Rate Paths 184

Non-Maturing Instrument 191

No New Business Treatment 192

No New Account Treatment 196

Constant Balance Treatment 197

Inclusion of Prepayment and Default: A Roll Forward Approach 198

Summary 207

Notes 210

Bibliography 210

Chapter 3 Equity Valuation 213

Dividend Discount Model 214

Discounted Free Cash Flow Method 217

Comparative Valuation Using Price Ratios 226

Summary 233

Note 234

Bibliography 235

Chapter 4 Option Valuation 237

Stock Option 238

Boundary Values 240

Call Option 241

Put Option 243

Put-Call Parity 247

Underlying Stock Does Not Pay Dividends 247

Underlying Stock Pays Dividends or Provides Yield 251

Binomial Tree 252

The Black-Scholes-Merton Model 267

Generalization of the Black-Scholes-Merton Model 272

Option Valuat...

Sommaire:

POOYA FARAHVASH is vice president of Treasury Modeling and Analytics at American Express Company overseeing development of models used in ALM, liquidity risk management, stress testing, and deposit products. He previously worked at investment bank Jefferies in liquidity risk management and at CIT Group in asset-liability management. His experience in the banking industry is focused in treasury department activities, specifically in areas of interest rate risk, liquidity risk, asset-liability management, deposit modeling, and economic capital. Dr. Farahvash is also an adjunct instructor at New York University, teaching analytical courses. He received his PhD degree in Industrial and Systems Engineering and MS degree in Statistics both from Rutgers University, New Jersey. He currently lives in New York City....