Asset Liability Modeling

Asset/liability modeling is the process used to manage the business and financial objectives of a financial institution or an individual through an assessment of the portfolio assets and liabilities in an integrated manner. The process is characterized by an ongoing review, modification, and revision of asset and liability management strategies so that sensitivity to interest rate changes is confined within acceptable tolerance levels.

Different models use different elements based on specific needs and contexts. An individual or an organization may keep parts of the ALM process and outsource the modeling function or adapt the model according to the requirements and capabilities of relevant institutions such as banks, which often have their in-house modeling process. There is a vast array of models available today for practical asset and liability modeling and these have been the subject of several research studies.[1]

See Also