Strategic asset-liability management is a primary concern in today's banking environment. In this paper, we present a methodology to assist in the process of asset-liability selection in a stochastic interest rate environment. In our approach, a quadratic optimizer is embedded in a simulation model and used to generate patterns of dividends, market value and duration of capital, for randomly generated interest rate scenarios. This approach can be used to formulate, test, and refine asset-liability strategies. We present results of applying this methodology to data from the Federal Home Loan Bank of New York.
ASJC Scopus subject areas
- Computer Science Applications
- Management Science and Operations Research