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Defined Benefit Pension Schemes in the United KingdomAsset and Liability Management$
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Philippe-N. Marcaillou

Print publication date: 2016

Print ISBN-13: 9780198738794

Published to Oxford Scholarship Online: May 2016

DOI: 10.1093/acprof:oso/9780198738794.001.0001

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Understanding Asset and Liability Management (ALM)

Understanding Asset and Liability Management (ALM)

Chapter:
(p.8) 2 Understanding Asset and Liability Management (ALM)
Source:
Defined Benefit Pension Schemes in the United Kingdom
Author(s):

Philippe-N. Marcaillou

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780198738794.003.0002

Chapter 2 demonstrates the author’s pragmatic approach regarding ALM and funding ratio maximization as well as his processes. It gives an overview of ALM risk management and shows how to build an ALM strategy with the right risk metrics. The chapter shows various methodologies for calculating liabilities and for each methodology, the impacts on the funding ratio, contributions, and the investment strategy. Based on actual examples, this chapter teaches decision-makers to assess where risks and tricks are located, ALM investment strategies and how to measure their risk aversion in order to select the right investment strategy (risk allocation of the return-seeking portfolio, liability hedging strategy, performance and horizon of investment). It provides techniques for assessing the efficiency of the management of the liquidity. This chapter teaches decision-makers to define the targets of each component of an ALM framework, a powerful tool for monitoring the efficiency of the investment strategy.

Keywords:   Asset and Liability Management (ALM) framework maximization, asset and risk allocations, correlation, duration, dynamic risk management, investment strategy solutions, liability valuation and hedging strategy, liquidity management, risk-adjusted return, stress test/back testing

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