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Latest Developments In Models And Application Of Asset Liability Management In Financial Institutions

Posted on:2006-02-02Degree:DoctorType:Dissertation
Country:ChinaCandidate:W ZhaoFull Text:PDF
GTID:1119360182467653Subject:Finance
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After 1980s, based on the traditional theory, Asset Liability Management has achieved its breakthrough and also focuses on risk management. Since the 1990s, the tendency of economical globalization has progressed by leaps, the international banking industry has reorganized, the new financial product emerges one after another incessantly, the system of Asset Liability Management is more and more perfect, Asset Liability Management also enters into a new stage. With the impulse of Basel committee and COSO, Enterprise Risk Management (ERM) has achieved greater development. At the same time, the modern theory of Asset Liability Management has gradually formed.Modern Asset Liability Management is a brand-new domain. The introduction of its theory and the practice is very significant for the theoretic development and the practice in China. The financial textbooks in China just introduce the traditional theory of ALM. Even some researches regard Asset Liability Management as risk management of interest rate. Chinese financial industry has ignored the development of ALM in the 1990s. This thesis presents the theoretic development and the practice of ALM in foreign countries, and then analyses the precondition and system of designing Enterprise Risk Management and pushing Asset Liability Management. Finally the thesis gives corresponding measures and suggestion. I hope that this thesis can accelerate the theoretic development and the practice of ALM in China. 'In the first chapter, this article has reviewed the traditional theory of Asset Liability Management. The first section emphasizes Funding gap model and Duration Gap model. Asset Liability Management makes progress based on Asset Management and Liability Management. Risk management of interest rate is the hard core of Asset Liability Management. Funding gap model and Duration Gap model are the main models of interest rate risk management in ALM.In the second chapter, this article discusses the development of ALM from theperspective of four analytical ideas and modeling methods. These modeling methods are Mean-Variance model, Discrete-Time model, Continuous-Time model and Stochastic Programming model. They are representatives of the theoretic development in ALM.Improved Mean-Variance model and downside-risk measures are based on the Mean-Variance framework of Markowitz (1952). Discrete-Time model overcomes the shortcoming of a single period in Mean-Variance model. Mossin (1968), Samuelson (1969) and Hakansson (1970) study the multi-period consumption-investment problem. In 1999, Berkelaar and Kouwenberg introduces a discrete-time retirement saving model and analyses the multi-period problem in ALMContinuous-Time model is based on Continuous-Time framework of Merton. In Continuous-Time framework, Brennan, Schwartz and Lagnado, Balduzzi and Lynch, Barberis and Xia research asset allocation, optimal investment strategy and continuous-time investment models.Since stochastic programming model can support the decision process under uncertainty, it is more and more used in research and the practice in the financial industry. Foreign researchers study the application of multi-period stochastic programming model in financial institutions. They include Bradley and Crane, Kusy and Ziemba, Mulvey and Vladimirou, Carino et al. Hiller and Eckstein, Zenios, Golub et al. Kusy and Ziemba employ a stochastic linear programming with simple recourse for Vancouver City Savings Credit Union. This model is a representative model. Russell-Yasuda Kasai designed by Carino et al is another milestone.In the second chapter, the fifth section comments on the theoretic development of ALM. This section points out advantages and disadvantages of four modeling methods. Finally this section presents the research emphases and the development of ALM in the future.In the third chapter, the thesis presents the practice of ALM in commercial banks. Kusy and Ziemba employ a stochastic linear programming with simple recourse to simulate ALM problem in commercial banks. Their model is treated as a milestone ofALM model in commercial banks. The second section presents the application of Kusy and Ziemba' model in Vancouver City Savings Credit Union. The second section discussed the application of SLPSR in Turkish banking in 1990s.The forth chapter presents the application of ALM model in other institutions. Russell-Yasuda Kasai designed by Carino et al is another milestone after Kusy and Ziemba' model. The first section discusses the application of Russell-Yasuda Kasai in Yasuda insurance company. Based on ALM of pension fund in the Netherlands, the second discusses the application of ALM model in pension fund.In the fifth chapter, from the perspective of Enterprise Risk Management, this article has presented the relation between Asset Liability Management and Enterprise Risk Management. From the perspective of the theoretic development of Risk Management, the first section presents four stages: Asset Management pattern, Liability Management pattern, Asset Liability Management pattern and Enterprise Risk Management. The second section discusses the background and definition of Enterprise Risk Management, and then presents the definition, management framework and indexes. The third section presents the background, definition of ALM and the relation with ALM and ERM. This thesis considers that ERM provides the platform and framework for ALM, while ALM is the strategy and process of risk management in ERM.The sixth chapter analyses the reality in China, and presents the possibility and the development of modern ALM in China. In this chapter, the thesis analyses and compares Asset Liability Management and Asset Liability proportion Management. Then the thesis analyses the precondition and institutional foundation, and then gives corresponding measures and suggestion of designing ERM and pushing ALM in China.
Keywords/Search Tags:Asset Liability Management, Improved Mean-Variance model, Discrete-Time model, Continuous-Time model, Stochastic Programming model
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