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FINANCIAL MARKET COURSES

Asset & Liability Management (ALM) – Interest Rate Risk

This course looks at the ever-increasing problems faced by asset liability managers in managing the interest rate risk associated with banking portfolios. The course outlines the shortfalls of traditional analysis, and shows how the focus should be on the values of a balance sheet as a whole, rather than simply immediate earnings. A whole set of different tools are required to deal with the complexities and inherent options of a large balance sheet; use of the concepts of duration and convexity allow a deeper understanding of inherent risks. These risks can often be effectively managed through executing appropriate transactions in the derivatives markets.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Explain the difference between interest rate risk management, which targets the current level of earnings, and an approach that focuses on the market value of a bank's portfolio

    Explain the concepts of duration and convexity as they relate to interest rate risk, and the concept of duration gap

    Describe how the use of derivative transactions can help asset and liability managers to overcome typical portfolio problems

  • COURSE OUTLINE

    Topic 1: Problems with Gap Analysis

    Gap Analysis – Shortcomings

    Earnings vs. Value

    Topic 2: Beyond Gap Analysis

    Market Value

    Economic Value of Equity (EVE)

    Duration

    o Portfolio Duration

    o Duration Gap

    Convexity

    Topic 3: Derivatives & Hedging

    Forward Rates & Curves

    Creating Forward Rates

    FRAs, Swaps & Breakevens

    Basic Swaps

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    90 Minutes

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