Masterclass on Asset Liability Management (ALM) Optimization

Created by LEC Team
Last updated Mon, 27-Mar-2023
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. Subsequently, calculated ALM can considerably boost monetary efficiency by delivering a much better equilibrium between returns and threats across the on and off-balance sheet items.

Program Purposes of Masterclass on Asset Liability Management (ALM) Optimization


  • Understand the ALM function in a financial institution
  • Gain an understanding on the IRRBB measurement methods
  • Gain an understanding on the IRRBB earnings enhancement strategies
  • Getting rid of the functional difficulties associated with the BCBS 368 Demand
  • Gain knowledge on the pricing of liquidity
  • Summary of the most effective method in the Funds Transfer Rates procedure
  • Introduction of the balance sheet optimization techniques


Day 1
ALM Introduction and Overview

  • IRRBB measurement, management and strategies

  • Case study: calculation of the NII sensitivity and EVE volatility under different interest rate scenarios

  • Case study: assessment of the basis risk through re-fixing gap analysis

  • Case study: analysis of the IRRBB metrics – is the IRRBB well managed?



Day 2
Introduction to the liquidity risk managed within ALM

  • Case study: calculation of the size of the liquidity buffer in a bank

  • Trade-off between hedging and funding strategies

  • Case study: undertaking different hedging and funding strategies – what happens?

  • Case study: Pros and Cons of the use of derivatives – practical example

  • Summary of the main take away messages for the IRRBB and liquidity

  • Basel Committee of Banking Supervision Standards and European Banking Authority – detailed analysis of the requirements for IRRBB



Day 3
ALM role in the FTP framework

  • What is Funds Transfer Pricing?

  • Case study: calculation of Net Interest Margin in business units and ALM

  • Case study: analysis of the ALM P&L components

  • Introduction to the Balance Sheet Optimisation techniques

  • Conclusions and Questions



Day 4
Formulation of the Optimisation Process and Articulation of the Decision Model

  • The Optimisation Method Applied to the Banking Book 

  • Introduction of the Optimisation Concept 

  • Definition of the Initial Banking Book Profile 

  • Building the Objective and Constraint Functions in the Optimisation Process 

  • The Importance of Model Sensitivity Analysis 

  • Definition of the Sensitivity Parameters for the Optimisation Model 

  • ‘Significant Changes in Interest Rates’ Scenario 

  • Changes in the Initial Proportions of the Asset Base 

  • Changes in the Output of the Deposit Characterisation Model – Balance Volatility, Balance Sensitivity, and Average Life of the Product 

  • Introduction of the CPR into the Model



Day 5
Derivatives Hedging in ALM
  • Derivatives hedge accounting under IFRS 9. What place for non-designated hedges with economic benefit?

  • Review of key interest rate and FX derivatives used in ALM

  • Level 2 vs. Level 3 valuation

  • Using interest rate derivatives to manage net interest income, fair value portfolios, and funding management

  • Standard vs. non-standard derivatives

  • Operational and liquidity implications

  • Enhancing income through use of derivatives

  • ALM impact of clearing derivatives through central clearers vs. bilateral margining

  • Collateral and capital implications of new derivatives regulations

  • Impacts on capital and financial performance from derivatives applications


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