This course begins with a discussion of risk versus return. The role of ALCO in the risk management process and the different risks faced by institutions are explored. How ALCO intertwines their objectives with the firms strategic and operating plans is examined. Particular focus is given to interest rate risk and its identification, measurement and management. Duration and DV01 are discussed and the appropriate time to use them is explored. A closer look at derivative products and their applications in ALM are considered. Value at risk, stress testing and back testing are examined and their applications in a firm wide risk management program are discussed. Capital and capital allocation are looked at along with the RAROC or risk adjusted return on capital. Transfer pricing and liquidity contingency plans are all explored.

Objectives

By the end of the program the course participant will be able to:

• Discuss the difference between ALM and risk management
• Discuss the strategic framework for ALM
• Identify the organizational structure of ALM
• Explain the importance of capital, capital allocation and RAROC
• Discuss the impact of Basel II
• Apply duration and DV01 for both balance sheet use and derivatives trading books
• Apply derivatives on the balance sheet
• Apply asset securitization for balance sheet management purposes
• Discuss liquidity management and the importance of a contingency funding plan
• Discuss the role of transfer pricing

This course is targeted at a beginning to intermediate level and is appropriate for anyone with an interest in this area.