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ALM and Asset Management
Asset and Liability Management Handbook

Authors: Editors: Gautam Mitra, Katharina Schwaiger
Editions: Palgrave Macmillan
Pages: 552 pages
Date: March 2011
 
 
 
Summary
In recent years, quantitative methods for asset and liability management strategies have developed and become more widely used.

This handbook brings together state-of-the-art quantitative decision models for asset and liability management in respect of pension funds, insurance companies and banks. It takes into account new regulations and industry risks, covering new accounting standards for pension funds, solvency II implementation for insurance companies and Basel II accord for banks.

Written by leading experts in the field, practitioners as well as academics, the book is an indispensable guide for quantitative and professional executives concerned with managing assets and liabilities.



EDHEC-Risk Institute researchers Noël Amenc, Lionel Martellini, Vincent Milhau and Volker Ziemann (now with the French Ministry of Economy) contributed a chapter to the publication entitled, "Exploiting Asset-Liability Management Concepts in Private Wealth Management", based on research supported by Ortec Finance as part of the "Asset-Liability Management in Private Wealth Management" research chair at EDHEC-Risk Institute.

The chapter sheds light on the potential benefits of the use of asset-liability management techniques in a private wealth management context. The main contribution is to show that a significant fraction of the complexity of optimal asset allocation decisions for private investors can be captured through the introduction of a single additional state variable, the liability value, which can account in a parsimonious way for investors' specific constraints and objectives. Taking an ALM approach to private wealth management has a direct impact on the selection of asset classes, in that it leads to a focus on the liability-hedging properties of various asset classes, a focus that would, by definition, be absent from an asset-only perspective. It also leads to using the liability portfolio as a benchmark or numeraire, hence recognising that what matters for private investors is not so much terminal wealth per se as ability to achieve such goals as preparing for retirement or buying property.