This section introduces the fundamental purpose of Asset Liability Management (ALM): aligning a company’s asset strategies with its liability obligations to ensure financial stability and solvency. You’ll learn the core principles of ALM, examine case studies of historical failures, and identify key risks—including interest rate risk, liquidity risk, and the complexities introduced by embedded options in insurance and pension products. By grounding your understanding in both theory and practice, this section sets the stage for evaluating and managing ALM risk effectively in a real-world context.

This section focuses on the quantitative tools and frameworks used to measure and analyze risks arising from both assets and liabilities. You'll explore techniques such as duration, DV01, key rate durations, and principal component analysis to understand risk exposure. Additionally, you'll assess portfolio vulnerabilities related to long-duration liabilities—such as those driven by inflation, longevity, and illiquidity. Through practical application of these tools, you’ll gain a deeper appreciation for the challenges of modeling risk in portfolios that span decades.

In this section, you’ll apply your knowledge of ALM principles and risk measurement to the development of strategies that manage and mitigate ALM risks. Topics include asset allocation strategies that match liability profiles, use of derivatives to hedge interest rate risk, and scenario analysis and stress testing to evaluate resilience under extreme conditions. You'll also examine model risk, parameter uncertainty, and risk mitigation techniques using options and structured instruments. This section integrates technical tools with strategic thinking to help you design robust ALM frameworks under various financial conditions.