Asset-Liability Management Course

Lesson 1 • The ALM Function in Financial Institutions

Defines ALM's mandate, governance structure, and position within treasury and risk management. Establishes why balance sheet optimisation is central to institutional stability.

Lesson 2 • Balance Sheet Structure and Dynamics

Examines asset and liability categories, their behavioural characteristics, and how mismatches arise. Connects balance sheet composition to funding and earnings risk.

Lesson 3 • Regulatory and Strategic Context

Surveys prudential standards, capital adequacy frameworks, and supervisory expectations shaping ALM. Links regulatory constraints to internal risk appetite and strategy.

Lesson 1 • Earnings-at-Risk and NII Sensitivity

Models net interest income under parallel and non-parallel rate shocks to quantify earnings risk. Connects NII sensitivity to gap positions established in prior sections.

Lesson 2 • Repricing Gap Analysis

Teaches static and dynamic gap construction to identify rate-sensitive mismatches by time bucket. Directly quantifies net interest income exposure to rate changes.

Lesson 3 • Behavioural Assumptions in Rate Models

Addresses prepayment, early withdrawal, and non-maturity deposit modelling as key inputs. Demonstrates how behavioural assumptions materially affect measured interest rate risk.

Lesson 4 • Duration and Convexity

Develops Macaulay, modified, and effective duration concepts for fixed-income instruments. Applies convexity adjustments to improve price sensitivity estimates.

Lesson 1 • Cash Flow Projection and Gap Analysis

Constructs contractual and behavioural cash flow ladders to identify liquidity gaps by time bucket. Integrates behavioural assumptions from interest rate chapters into liquidity projections.

Lesson 2 • Liquidity Stress Testing

Designs institution-specific and systemic stress scenarios to test liquidity adequacy. Produces survival horizon estimates and identifies vulnerabilities for management action.

Lesson 3 • Funding Diversification and Stability

Analyses funding source concentration, tenor distribution, and counterparty diversification strategies. Links stable funding composition to resilience under stress conditions.

Lesson 4 • Liquidity Risk Framework and Metrics

Establishes the conceptual distinction between funding and market liquidity and introduces standard metrics. Provides the measurement foundation for all subsequent liquidity management sections.

Lesson 1 • Optionality and Contingency Pricing

Prices embedded options such as prepayment rights and deposit withdrawal features within FTP. Ensures that option costs are allocated to originating business lines.

Lesson 2 • Charging and Crediting Mechanisms

Applies FTP rates to loans, deposits, and off-balance-sheet items through charging and crediting rules. Connects mechanism design to accurate risk transfer and margin attribution.

Lesson 3 • FTP Governance and Performance Measurement

Establishes review cycles, exception processes, and audit trails for FTP integrity. Links FTP outcomes to performance scorecards and incentive alignment.

Lesson 4 • FTP Concepts and Objectives

Explains the purpose of FTP in isolating interest rate and liquidity risk within the treasury unit. Establishes how accurate FTP drives correct business-line incentives.

Lesson 1 • Futures, Forwards, and Cross-Currency Hedges

Applies exchange-traded futures and forward rate agreements to short-term rate and currency exposures. Addresses basis risk between hedge instruments and underlying balance sheet items.

Lesson 2 • Caps, Floors, and Swaptions

Uses interest rate options to hedge asymmetric exposures and protect earnings floors or ceilings. Connects option premium costs to FTP optionality pricing from the prior chapter.

Lesson 3 • Hedging Principles and Objectives

Distinguishes economic hedging from accounting hedge relationships and defines acceptable risk reduction targets. Frames hedge strategy within the institution's risk appetite and ALM policy.

Lesson 4 • Interest Rate Swaps in ALM

Demonstrates how pay-fixed and receive-fixed swaps convert asset and liability repricing profiles. Covers swap valuation, counterparty risk, and collateral management basics.

Lesson 1 • Reverse Stress Testing and Recovery Planning

Identifies scenarios that would cause institutional failure and links findings to recovery plan triggers. Translates stress test outcomes into actionable management responses.

Lesson 2 • Interest Rate Stress Scenarios

Applies regulatory and internally designed rate shocks to NII and EVE models built in Chapter 2. Quantifies tail risk and identifies balance sheet positions most vulnerable to rate moves.

Lesson 3 • Integrated Multi-Risk Stress Testing

Combines interest rate, liquidity, and credit shocks into a unified balance sheet stress framework. Captures risk interactions and second-order effects missed by single-risk tests.

Lesson 4 • Scenario Design Methodology

Establishes principles for constructing plausible, severe, and internally consistent ALM scenarios. Differentiates sensitivity analysis, scenario analysis, and stress testing by purpose and scope.

Lesson 1 • Capital Planning and Stress Capital

Builds forward-looking capital plans incorporating stress test results and strategic growth assumptions. Links capital planning to ALM balance sheet projections and funding strategy.

Lesson 2 • Balance Sheet Optimisation Under Constraints

Applies optimisation techniques to maximise risk-adjusted returns subject to capital and liquidity constraints. Synthesises all prior ALM tools into a unified balance sheet management approach.

Lesson 3 • Capital Allocation Across Business Lines

Distributes regulatory and economic capital to business units using risk contribution methods. Ensures capital allocation incentivises efficient balance sheet use.

Lesson 4 • Capital Adequacy Frameworks and ALM

Maps risk-weighted asset calculations and leverage constraints to balance sheet composition choices. Shows how capital requirements directly influence asset selection and funding strategy.

Lesson 1 • ALCO Structure and Decision-Making

Designs effective ALCO meeting cadence, reporting packages, and decision frameworks for balance sheet management. Addresses common governance failures and best practices for committee effectiveness.

Lesson 2 • Regulatory Reporting and Supervisory Dialogue

Prepares accurate regulatory submissions and manages supervisory relationships on ALM matters. Translates internal ALM data into externally required formats and disclosures.

Lesson 3 • ALM Model Risk Management

Identifies, validates, and controls model risk arising from ALM measurement and pricing models. Ensures model outputs are reliable inputs for strategic and operational decisions.

Lesson 4 • Risk Appetite and ALM Policy

Translates board-level risk appetite into quantitative ALM limits, triggers, and policy boundaries. Establishes the governance link between strategic intent and operational risk management.