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ALM – Crash Course – EXCEL Examples
About the course
The course includes 4 EXCEL files that present fully worked out procedures for the following ALM measurement tools:
a. Market Value of Equity – a measurement tool for calculating the impact of interest rate changes on the market value of equity of an entity. The changes to the market values of the entity's asset and liability portfolios are calculated by stressing or shocking the underlying interest rate term structure using a Value-at-Risk (VaR) based approach.
b. Earnings at Risk - a measurement tool for calculating the impact of interest rate changes on the earnings of an entity. The differences between the change in interest income/ expenses that results because of VaR based interest rate shocks on assets, liabilities and off-balance sheet items are calculated for each tenor bucket and then summed to arrive at the EAR number.
c. Cost to Close – Interest Rate Risk perspective - a measure of interest rate rate, i.e. the risk that the net interest revenues that could be earned on excess funds (i.e. where liabilities exceeds assets or negative gaps) will be adversely affected by movements in the interest rates.
d. Cost to Close – Liquidity Risk perspective – a measure of liquidity risk, i.e. the risk that there is a deficiency of funds due to cash outflows (assets) exceeding cash inflows (liabilities) during a given period. This particular measure assumes that positive gaps will be filled by borrowing from the market, usually at a rate that is at a premium over the risk free rate.
After taking this course you will be able to:
- Calculate the fall in market value of equity due to non-parallel VaR based interest rate shocks
- Calculate the earnings at risk due to non-parallel VaR based interest rate shocks
- Calculate the impact on net interest revenues of adverse movements in interest rates
- Calculate the cost of closing positive gaps indicative of a deficiency of funds by borrowing from the market
Theoretical knowledge of ALM & familiarity with the calculation of Value-at-Risk (VaR), local markets, portfolio management& Basel II/III. They should also be comfortable with basic mathematics, statistics, probability and EXCEL.
The course is aimed primarily at banking professionals and individuals responsible for asset liability management and risk management within banks, insurance companies and mutual funds who need to review or refresh their understanding of ALM and Capital Adequacy regulations for work, professional review, audit or personal development.