Asset-Liability and Liquidity Management

Asset-Liability and Liquidity Management distils the author's extensive experience in the financial industry, and ALM in particular, into concise and comprehensive lessons. Each of the topics are covered with a focus on real-world applications, based on the author's own experience in the industry.
 
The author is the Vice President of Treasury Modeling and Analytics at American Express. He is also an adjunct Professor at New York University, teaching a variety of analytical courses.
 
Learn from the best as Dr. Farahvash takes you through basic and advanced topics, including:
* The fundamentals of analytical finance
* Detailed explanations of financial valuation models for a variety of products
* The principle of economic value of equity and value-at-risk
* The principle of net interest income and earnings-at-risk
* Liquidity risk
* Funds transfer pricing
 
A detailed Appendix at the end of the book helps novice users with basic probability and statistics concepts used in financial analytics.

List of contents

About the Author xvii
 
Preface xix
 
Abbreviations xxiii
 
Introduction 1
 
Asset-Liability Management Metrics 5
 
ALM Risk Factors 7
 
Organization of This Book 8
 
Chapter 1 Interest Rate 17
 
Interest Rate, Future Value, and Compounding 18
 
Use of Time Notation versus Period Notation 22
 
Simple Interest 23
 
Accrual and Payment Periods 24
 
Present Value and Discount Factor 29
 
Present Value of Several Cash Flows 32
 
Present Value of Annuity and Perpetuity 33
 
Day Count and Business Day Conventions 34
 
Treasury Yield Curve and Zero-Coupon Rate 40
 
Bootstrapping 43
 
LIBOR 48
 
Forward Rates and Future Rates 49
 
Implied Forward Rates 50
 
Forward Rate Agreements 55
 
Interest Rate Futures 56
 
Swap Rate 58
 
Determination of the Swap Rate 61
 
Valuation of Interest Rate Swap Contracts 66
 
LIBOR-Swap Spot Curve 70
 
Interpolation Methods 75
 
Piecewise Linear Interpolation 76
 
Piecewise Cubic Spline Interpolation 78
 
Federal Funds and Prime Rates 84
 
Overnight Index Swap Rate 87
 
OIS Discounting 88
 
Secured Overnight Financing Rate 94
 
Components of Interest Rate 95
 
Risk Structure of Interest Rate 97
 
Term Structure of Interest Rate 98
 
Expectation Theory 100
 
Market Segmentation Theory 102
 
Liquidity Premium Theory 102
 
Inflation and Interest Rate 102
 
Negative Interest Rate 103
 
Interest Rate Shock 105
 
Parallel Shock 106
 
Non-Parallel Shock 107
 
Interest Rate Risk 109
 
Summary 110
 
Notes 112
 
Bibliography 114
 
Chapter 2 Valuation: Fundamentals of Fixed-Income and Non-Maturing Products 115
 
Principal Amortization 116
 
Bullet Payment at Maturity 116
 
Linear Amortization 117
 
Constant Payment Amortization 118
 
Sum-of-Digits Amortization 121
 
Custom Amortization Schedule 123
 
Fixed-Rate Instrument 124
 
Valuation 124
 
Yield 130
 
Duration and Convexity 133
 
Dollar Duration and Dollar Convexity 142
 
Portfolio Duration and Convexity 143
 
Effective Duration and Effective Convexity 144
 
Interest Rate Risk Immunization 145
 
Key Rate Duration 155
 
Fisher-Weil Duration 156
 
Key Rate Duration 160
 
Floating-Rate Instrument 165
 
Pre-Period-Initiation Rate Setting 166
 
Post-Period-Initiation Rate Setting 166
 
Valuation Using Estimated Interest Rates at Future Reset Dates 168
 
Using Implied Forward Rate 168
 
Using Forecasted Rate 171
 
Valuation Using Assumption of Par Value at Next Reset Date 177
 
Duration and Convexity 182
 
Valuation Using Simulated Interest Rate Paths 184
 
Non-Maturing Instrument 191
 
No New Business Treatment 192
 
No New Account Treatment 196
 
Constant Balance Treatment 197
 
Inclusion of Prepayment and Default: A Roll Forward Approach 198
 
Summary 207
 
Notes 210
 
Bibliography 210
 
Chapter 3 Equity Valuation 213
 
Dividend Discount Model 214
 
Discounted Free Cash Flow Method 217
 
Comparative Valuation Using Price Ratios 226
 
Summary 233
 
Note 234
 
Bibliography 235
 
Chapter 4 Option Valuation 237
 
Stock Option 238
 
Boundary Values 240
 

About the author

POOYA FARAHVASH is vice president of Treasury Modeling and Analytics at American Express Company overseeing development of models used in ALM, liquidity risk management, stress testing, and deposit products. He previously worked at investment bank Jefferies in liquidity risk management and at CIT Group in asset-liability management. His experience in the banking industry is focused in treasury department activities, specifically in areas of interest rate risk, liquidity risk, asset-liability management, deposit modeling, and economic capital. Dr. Farahvash is also an adjunct instructor at New York University, teaching analytical courses. He received his PhD degree in Industrial and Systems Engineering and MS degree in Statistics both from Rutgers University, New Jersey. He currently lives in New York City.

Product details

• Authors: Pooya Farahvash
• Publisher: Wiley, John and Sons Ltd
• Languages: English
• Product format: Hardback
• Released: 03.08.2020
• EAN: 9781119701880
• ISBN: 978-1-119-70188-0
• No. of pages: 1056
• Subjects: Social sciences, law, business > Business > Business administration; Finance & Investments, Finanz- u. Anlagewesen, Institutionelle Finanzplanung, Institutional & Corporate Finance