Optimal Asset Allocation in Asset Liability Management
We study the impact of regulations on the investment decisions of a defined benefits pension plan. We assess the influence of ex ante (preventive) and ex post (punitive) risk constraints on the gains to dynamic, as opposed to myopic, decision making. We find that preventive measures, such as Value-at-Risk constraints, tend to decrease the gains to dynamic investment. In contrast, punitive constraints, such as mandatory additional contributions from the sponsor when the plan becomes underfunded, lead to very large utility gains from solving the dynamic program. We also show that financial reporting rules have real effects on investment behavior. For example, the current requirement to discount liabilities at a rolling average of yields, as opposed to at current yields, induces grossly suboptimal investment decisions.
We thank Tim Bollerslev, Frank de Jong, Joachim Inkmann, Ralph Koijen, Vinay Nair, Theo Nijman, Anamaria Pieschacon, George Tauchen, Bas Werker, and seminar participants at the 2005 SAMSI conference on Financial Mathematics, Statistics and Econometrics, Duke University, Tilburg University and ABP Investments for helpful discussions and comments. Jules van Binsbergen thanks the Prins Bernhard Cultuurfonds for generous financial support. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
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Asset-liability management for long-term insurance business
- Original Research Paper
- Published: 16 April 2018
- Volume 8 , pages 9–25, ( 2018 )
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- Hansjörg Albrecher ORCID: orcid.org/0000-0002-5434-9270 1 ,
- Daniel Bauer 2 ,
- Paul Embrechts 3 ,
- Damir Filipović 4 ,
- Pablo Koch-Medina 5 ,
- Ralf Korn ORCID: orcid.org/0000-0002-9123-3883 6 ,
- Stéphane Loisel 7 ,
- Antoon Pelsser 8 ,
- Frank Schiller 9 ,
- Hato Schmeiser 10 &
- Joël Wagner ORCID: orcid.org/0000-0002-3712-5494 1
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This is a summary of the main topics and findings from the Swiss Risk and Insurance Forum 2017. That event gathered experts from academia, insurance industry, regulatory bodies, and consulting companies to discuss past and current developments as well as future perspectives in dealing with asset-liability management for long-term insurance business. Topics include valuation, innovations in insurance products, investment, and modelling aspects.
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Acknowledgements
We thank Stephan Schreckenberg for suggesting the format of the conference, and for his critical and active support in the creation of the Swiss Risk and Insurance Forum. We thank all participants for the stimulating and lively discussion: Albrecher Hansjörg, University of Lausanne; Bailly Alexis, Moody’s Analytics; Daniel Bauer, University of Alabama; Embrechts Paul, ETH Zurich and Swiss Finance Institute; Filipovic Damir, EPFL and Swiss Finance Institute; Germann Hansjörg, Zurich Insurance; Grützner Guido, QuantAkt; Guerin Jean-Francois, Swiss Life; Harrison Glenn, Georgia State University; Jäger Jan, Swiss Re; Jaschke Stefan, Infinada; Joos Pierre, Allianz; Jorgensen Peter Lochte, University of Aarhus; Kalberer Tigran, Milliman; Keller Philipp, Deloitte; Koch Pablo, University of Zurich; Korn Ralf, TU Kaiserslautern; Kunz Andreas, Munich Re; Leukert Renate, Swiss Re; Loisel Stéphane, Université Lyon 1; Moeller Thomas, PFA and University of Copenhagen; Pelsser Antoon, Maastricht University; Popp Markus, Munich Re; Schätti Guido, Swiss Re; Schiller Frank, Munich Re; Schmeiser Hato, University of St. Gallen; Schmutz Michael, Finma and University of Bern; Schreckenberg Stephan, Swiss Re; Singh Raj, Standard Life; Smith Andrew, Deloitte; Steiger Gallus, Swiss Re; Tommasina Tancredi, Swiss Life; Wagner Joël, University of Lausanne; Weber Frank, PwC; Werner Ralf, University of Augsburg; Wilson Tom, Allianz. The Swiss Risk and Insurance Forum 2017 received financial support from Swiss Re, Swiss Life, the Swissquote Chair in Quantitative Finance at EPFL, the ETH Risk Centre and RiskLab, the Center for Finance and Insurance at the University of Zurich and the Department of Actuarial Science of the University of Lausanne.
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Hansjörg Albrecher & Joël Wagner
Culverhouse College of Commerce, The University of Alabama, Tuscaloosa, US
Daniel Bauer
RiskLab and Swiss Finance Institute, ETH Zurich, Zurich, Switzerland
Paul Embrechts
EPFL and Swiss Finance Institute, Lausanne, Switzerland
Damir Filipović
Center for Finance and Insurance, University of Zurich, Zurich, Switzerland
Pablo Koch-Medina
Fachbereich Mathematik, Technische Universität Kaiserslautern, and Fraunhofer ITWM, Kaiserslautern, Germany
Institut de Science Financiére et d’Assurances (ISFA), Laboratoire SAF, Université Claude Bernard Lyon, Lyon, France
Stéphane Loisel
Maastricht University, Netspar, The Netherlands
Antoon Pelsser
Munich Re, Munich, Germany
Frank Schiller
Institute of Insurance Economics, University of St. Gallen, St. Gallen, Switzerland
Hato Schmeiser
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Albrecher, H., Bauer, D., Embrechts, P. et al. Asset-liability management for long-term insurance business. Eur. Actuar. J. 8 , 9–25 (2018). https://doi.org/10.1007/s13385-018-0167-5
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Received : 18 December 2017
Accepted : 19 March 2018
Published : 16 April 2018
Issue Date : June 2018
DOI : https://doi.org/10.1007/s13385-018-0167-5
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An Analysis of Asset-Liability Management in Banking Sector: A Case Study of Kotak Mahindra Bank
The Indian Financial System have changing and growing very fast way. Competitive business world involving both the asset and liabilities with changing interest rates as well as foreign exchange rates has brought pressure on the management of banks to maintain good profitability.Assets and Liability Management (ALM) is a systematic and dynamic process of planning, organizing, coordinating and controlling the assets and liabilities or in the sense management of balance sheet structure in the bank is the biggest opportunity for the Indian banking system. The main objectives of the study is to understand the theoretical background of assets liability management and profile of the bank in general and to assess the performance of profitability position in Kotak Mahindra Bank and also to evaluate the performance of profit and loss account and balance sheet ratios in Kotak Mahindra Bank. In this paper data has been collected from secondary sources from annual reports of Kotak Mahindra Bank from the period of 2013-14 to 2017-18.Finally to analyze the performance of assets and liabilities management has been measured it results the credit deposit ratio, quick ratio, interest expanded to interest earn, other income to total income and interest spreadthis ratios showing increasing trend from one year to another year therefore the performance of assets liability management position is satisfactory and better in Kotak Mahindra Bank.
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COMMENTS
Defines asset-liability management (ALM) as the process whereby a bank's total assets and liabilities are controlled and managed simultaneously in an integrated fashion. In the management of the overall balance sheet, ALM comprises the strategic planning and implementation and the control processes that affect the volume, mix, maturity, interest rate sensitivity, quality, and liquidity of ...
The study concluded that Indian bank is more profitable with good asset liability management strategy; therefore Investors would be motivated to invest in a bank which has high profitability ratio ...
This paper employs the Statistical Cost Accounting (SCA) model to examine the relationship between profit and Asset-Liability Management (ALM) structure of 27 banks in Ghana over the period 2007-2015.
15 Asset-Liability Management in Defined Contribution Pensions: A Stochastic Model with reference to ... Ehrentreich LDI Consulting & Research, LLC 504 ... 2.3 Commercial paper programme liability profile 20 2.4 ALM time profile 21 2.5 Funding position on a daily basis 24 2.6 (i) XYS Securities Limited ALM report and profile ...
Barbarin and Devolder [ 2] develop a model, in which assets are a mix of stocks, bonds, and cash, while liabilities are the result of a guaranteed technical rate to the premium, plus a participation rate in the case of a surplus. The paper integrates a risk-neutral approach with a ruin probability.
Kumar, (2014), Studied On Research, The Most Important Factor Which Banks Required To Manage Now Days Is Liquidity. This Study Analyzed Short Term Liquidity And Maturity Gap Of The Banks In Order ... Shetty (2016), Conducted A Study On An Analysis Of Private Banks Exposure To Asset Liability Management. These Paper Attempts To Assess The ...
The paper aims to introduce a number of definitions and market practices that are fundamental for an effective asset and liability management (ALM) strategy. It provides examples of a practically ...
ORIGINAL RESEARCH PAPER Asset-liability management for long-term insurance business Hansjo¨rg Albrecher1 • Daniel Bauer2 • Paul Embrechts3 • Damir Filipovic´4 • Pablo Koch-Medina5 • Ralf Korn6 • Ste´phane Loisel7 • Antoon Pelsser8 • Frank Schiller9 • Hato Schmeiser10 • Joe¨l Wagner1 Received: 18 December 2017/Accepted: 19 March 2018/Published online: 16 April 2018
This research was conducted to investigate the effect of asset liability management on profitability of private commercial banks in Ethiopia by using panel data of seven private commercial banks in Ethiopia from year 2005 to 2017 G.C.The study used audited annual financial report of selected banks and analyzed by using multiple regression models moreover, net interest income, was to measure ...
This study applies statistical cost accounting method to a sample of 106 sub-Saharan African microfinance institutions (MFIs) during 2014-2018 to investigate the relationship between asset-liability management and financial performance. The result shows that the composition of assets and liabilities has both positive and negative effects on the returns of the MFIs in the sample. Net loan ...
The research paper discusses about issues in asset liability management. Sayeed (2012), attempted to examine the impact of asset and liability management on the profitability high ... Shetty (2016) conducted a study on an analysis of private banks exposure to asset liability management. These paper attempts to assess the liquidity risk that all ...
Abstract and Figures. Assets and Liabilities Management (ALM) is a dynamic process of planning, organizing, coordinating and controlling the assets and liabilities-their mixes, volumes, maturities ...
The paper aims to introduce a number of definitions and market practices that are fundamental for an effective asset and liability management (ALM) strategy. It provides examples of a practically feasible ALM strategy with some stylized features in the data. The reader can make use of the proposed ALM strategies to build more complex management ...
The model, by using a contingent claim approach, determines the fair value of the banks' liabilities accounting for the protection and the surrender possibility. Furthermore, it determines the interest rate risk in combination with the stochastic optimization to obtain the implications for immunization.
The paper analyses asset-liability management in banks operating AIMA Journal of Management & Research, May 2013, Volume 7, Issue 2/4, ISSN 0974 - 497 Copy right© 2013 AJMR-AIMA in India by determining the liquidity position of Banks in India through maturity profiling.
Asset—liability management is one of the most important issues in bank strategic planning (Kosmidou and Zopounidis 2002 ). The application of the optimization tool for determination of the optimal balance among profitability, risk, liquidity and other uncertainties has been already studied prior to the financial crisis in 2007-2009.
This committee is traditionally called the Asset and Liability Committee. Asset-liability management is the effective management of the overall balance sheet, comprising the strategic planning, implementation, and the control process that affects the volume, risk, maturity, interest rate sensitivity, quality and liquidity of a bank's assets ...
Optimal Asset Allocation in Asset Liability Management. Jules H. van Binsbergen & Michael W. Brandt. Working Paper 12970. DOI 10.3386/w12970. Issue Date March 2007. We study the impact of regulations on the investment decisions of a defined benefits pension plan. We assess the influence of ex ante (preventive) and ex post (punitive) risk ...
the region makes it ideal for the study of asset-liability management. erefore, this paper aims to examine the impact of asset-liability management on the nancial performance of micronance institutions in the Sub-Saharan Africa region. Specically, it examines whether MFIs earn a positive return on their assets and a nega-
The computation of such indicator could be suitable for the appraisal of both portfolio optimization and potential profits of the structured policy. The selection tool is put into an asset and liability management decision making context, where the relationship between expected surplus and capital at risk are compared.
This is a summary of the main topics and findings from the Swiss Risk and Insurance Forum 2017. That event gathered experts from academia, insurance industry, regulatory bodies, and consulting companies to discuss past and current developments as well as future perspectives in dealing with asset-liability management for long-term insurance business. Topics include valuation, innovations in ...
The Indian Financial System have changing and growing very fast way. Competitive business world involving both the asset and liabilities with changing interest rates as well as foreign exchange rates has brought pressure on the management of banks to maintain good profitability.Assets and Liability Management (ALM) is a systematic and dynamic process of planning, organizing, coordinating and ...