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"Liability management"
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A decision-dependent randomness stochastic program for asset–liability management model with a pricing decision
In this study, we present a stochastic programming asset–liability management model which deals with decision-dependent randomness. The model focuses on a pricing problem and the subsequent asset–liability management problem describing the typical life of a consumer loan. Such problems are frequently tackled by many companies, including multinationals. When doing so, they must consider numerous factors. These factors include the possibility of their customer rejecting the loan, the possibility of the customer defaulting on the loan and the possibility of prepayment. The randomness associated with these factors have a clear relationship with the offered interest rate of the loan which is the company’s decision and thus, induces decision-dependent randomness. Another important factor, which plays a major role for liabilities, is the price of money in the market. This is determined by the market interest rates. We captured their evolution in the form of a scenario tree. In summary, we formulated a non-linear, multi-stage stochastic program with decision-dependent randomness, which spanned the lifetime of a typical consumer loan. Its solution showed us the optimal decisions that the company should make. In addition, we performed a sensitivity analysis demonstrating the results of the model for various parameter settings that described different types of customers. Finally, we discuss the losses caused if companies do not act in the optimal way.
Journal Article
Bank asset and liability management
\"An in-depth look at how banks and financial institutions manage assets and liabilities Created for banking and finance professionals with a desire to expand their management skillset, this book focuses on how banks manage assets and liabilities, set up governance structures to minimize risks, and approach such critical areas as regulatory disclosures, interest rates, and risk hedging. It was written by the experts at the world-renowned Hong Kong Institute of Bankers, an organization dedicated to providing the international banking community with education and training. Explains bank regulations and the relationship with monetary authorities, statements, and disclosures Considers the governance structure of banks and how it can be used to manage assets and liabilities Offers strategies for managing assets and liabilities in such areas as loan and investment portfolios, deposits, and funds Explores capital and liquidity, including current standards under Basel II and Basel III, funding needs, and stress testing Presents guidance on managing interest rate risk, hedging, and securitization\"-- Provided by publisher.
Book
The Impact of Asset-Liability Management on the Profitability of Listed Commercial Banks in Vietnam
This paper investigates the effect of asset-liability management on the profitability of listed commercial banks in Vietnam, analyzing annual data from 2013 to 2023. The study uses VIF tests, Heteroskedasticity tests, Model Specification tests, and the Generalized Least Squares (GLS) model with the Modified Wald test to examine the data. The results reveal a positive correlation between bank asset management and annual GDP growth with profitability. Conversely, liability management and the year-on-year growth rate of total assets negatively impact profitability. Specifically, factors such as loans and advances, investments in securities on the asset side, and deposits and borrowings from other credit institutions, along with customer deposits on the liability side, are significant. Lending activities, in particular, are identified as key drivers of financial performance in the Vietnamese banking sector. However, the minimal impact of investment securities on profitability raises questions, given their traditionally significant role in banking profitability strategies globally. The study also highlights the negative effects of certain liabilities on bank profitability, stressing the need for careful liability management for banks in Vietnam. While GDP growth is generally linked with economic prosperity and financial sector growth, its impact on bank profitability in Vietnam appears limited, suggesting that other factors might play a more significant role.
Journal Article
Long-term individual financial planning under stochastic dominance constraints
We analyse an optimal goal-based households’ asset-liability management problem characterised by a real estate target and a retirement goal over a long-term planning horizon. The problem is formulated as a multistage stochastic program and we evaluate the impact of second order stochastic dominance (SSD) constraints on different specifications of a family objective function and with respect to three alternative benchmark policies. We define a stochastic linear program in which the SSD constraints are based on a double stochastic matrix, whose effectiveness in determining the decision maker strategies is studied in a case study developed in the second part of the article. We show that depending on the adopted benchmark policy, SSD constraints even if binding far on the planning horizon, may influence the root node investment decision and affect both the investment and the liability optimal policies. Based on an extended computational study we analyse under which conditions and problem formulation, an SSD condition may also imply first order stochastic dominance (FSD). Finally we analyse the relationship between the specification of a minimum shortfall objective with respect to the goals and the introduced SSD constraints at the terminal horizon.
Journal Article
Mean–Variance Asset–Liability Management Problem Under Non-Markovian Regime-Switching Models
In this paper, we study an asset–liability management problem under a mean–variance criterion with regime switching. Unlike previous works, the dynamics of assets and liability are described by non-Markovian regime-switching models in the sense that all the model parameters are predictable with respect to the filtration generated jointly by a Markov chain and a Brownian motion. The problem is solved with the aid of backward stochastic differential equations (BSDEs) and bounded mean oscillation martingales. An efficient strategy and an efficient frontier are obtained and represented by unique solutions to several relevant BSDEs. We show that the optimal capital structure can be achieved when the initial asset value is expressed by a linear combination of the initial liability and the expected surplus. It is further found that a mutual fund theorem holds not only for the efficient strategy, but also for the optimal capital structure.
Journal Article