Optimization Model Of Asset-Liability Portfolio Base On The Effective Duration

ALM (Asset-Liability Management) is a kind of total risk control and the resources supply methods, and to combine the assets and liability to see as an organic whole. It also moderate the inside relation of the funds' coming and going. ALM moderates the liquidity, safety and profit, and carries out the maximum profit under the acceptable risk.The paper is organized as follows. Section 1 introduces the knowledge that used in thepaper.-the model of effective duration, and our theory is introduced in Section 2-embedded-option risk controlling theory, interest rate structure symmetry theory and quantity structure symmetry theory. Our model is set up in Section 3. The asset allocation results are reported in Section 4.The main works of the paper are shown as follows:(1) Building a constrain condition which can both control the embedded-option risk and interest rate risk. This paper adds the effective duration in the interest rate condition to calculate the embedded-option assets and liability duration, to build the constrain condition which can both control the embedded-option risk and interest rate risk.(2) Setting up the optimization model of asset-liability portfolio base on the effective duration. This paper puts forward the theory of controlling embedded-option risk of the asset-liability management base on the effective duration, and combining duration gap and laws and regulations control of banks' interest risk and liquidity risk. It takes the maximum interest rate of loans as the target and linear programming as the tool to set up the optimized asset-liability portfolio model based on option-adjusted duration.The first innovation and characteristic of this paper is that it puts the effective duration into the interest-rate risk controlling condition to control both the embedded-option risk and interest rate risk. Secondly, it introduces the interest rate structure symmetry theory and quantity structure symmetry theory to the optimization of banks' assets and liabilities portfolio in order to control the liquidity and interest risk in banks' operation, protect the interest of shareholders and guarantee the validity of banks' assets rationing in law and regulation.