Liquidity Stress Testing a fixed income securities portfolio
How do you manage liquidity risk for a fixed income portfolio. How do you stress test liquidity risk for the same fixed income book. What are the primary drivers used in the liquidity stress testing model?
There are questions that come up regularly in our interaction with students and [...]
Tag Archives: Liquidity Risk
liquidity risk management framework training video session covering the origins of a liquidity crisis
Capital estimation for Liquidity Risk Management is a difficult exercise. It comes up as part of the internal liquidity risk management process as well as the internal capital adequacy assessment process (ICAAP). This post and the liquidity risk management series that follows suggests a framework for ongoing discussion based on the work done by our team with a number of regional banking customers
Liquidity Risk Management: Bear Stearns Liquidity Run Case Study Timelines
20 December 2007: BS records 4th quarter loss, writes down mortgage assets of $1.9 billion. Sued by Barclays for misleading hedge fund performance
28 December 2007: Employees sell BS stock worth $ 20 million
Early January 2008: CEO James Cayne resigns. Moody’s downgrade of MBS tranches issued by [...]
Liquidity Risk management: Bear Stearns Case Study: The Liquidity Run cycle
When property values began to plummet in 2006-2007, subprime mortgage payers defaulted on their payments which initiated a chain reaction whereby there was a significant drop in the cash inflows from these mortgages which would have been used to pay off the obligations on the [...]
Asset Liability Management (ALM) includes effective liquidity management. One way of assessing a bank’s exposure to liquidity risk is to consider the gaps that exist between its assets and liabilities for pre-defined time buckets, and then calculate the cost that would be incurred to close out those gaps. The course goes through the methodology of [...]
This advanced level workshop serves as a refresher to liquidity management, with an emphasis on traditional models including gap analysis andearnings at risk, stress testing, scenario planning, policy making and simulations.
1. COURSE OBJECTIVES
At the end of this workshop the participants will be able to:
Measure liquidity and quantify the effectiveness of traditional measurement tools.
Use scenario based [...]
A methodology to measure the liquidity risk that a bank is exposed to: the Cost-to-Close Liquidity Gap technique.
The Asset Liability Management (ALM) Crash course starts off with basic and core concepts and quickly delves into core tools including Gaps, Earnings at Risk and Cost to close reports. In addition to the traditional mismatch focus, the course also includes a short section on Liquidity Management as well as a related concepts section with [...]
Duration is a measure of how rapidly the prices of interest sensitive securities change as the rate of interest changes (see application example in the ALM section). For example, if the duration of a security works out to 2 this means that for a 1% increase in interest rates the price of the instrument will decrease by 2%. Similarly, if the interest rates were to decrease by 1% the price of the security would increase by 2%.
