Asset Liability Management: Forecasting Tool

PolyPaths Asset Liability Management (ALM) integrates accounting and income simulation with market value economics and risk. It brings the analytics for the PolyPaths Trading & Risk Management solution to the strategic challenges of managing a balance sheet, with an emphasis on modeling, transparency, flexibility, and productivity. By bridging the gap between portfolio economics and accounting, ALM revolutionizes the calculation and reporting of assets and liabilities to improve risk measurement and decision making.

ALM puts income simulation in the hands of the decisions makers – across the corporation, in a division or unit, or at an individual level. Business users can change any element – accounting, products, funding, hedging, balance sheet targets, cash management, risk targets – and see the results in just minutes. It is being used across teams for portfolio management, risk management, earnings management, financial planning/budgeting, regulatory stress testing, counterparty exposure, and model validation.

PolyPaths ALM offers a robust set of features and capabilities including:

REAL TIME ACCOUNTING

All accounting treatments, GAAP, IFRS or otherwise, are elective and visible on one screen. Users can change accounting elections on the fly and see reports in just minutes.

  • Counterparty netting and cash collateral targeting
  • Credit adjusted accounting: Distressed assets, OTTI, lifetime credit provisioning
  • FAS115: held-to-maturity, available for sale and trading with and without amortization
  • FAS133 hedge accounting: fair value, cash flow and rolling cash flow hedges
  • Funds transfer pricing (FTP)
  • Lower of cost or market (LCM)
  • Macro hedging
  • Multi-dimensional planning and consolidated reporting
  • Multiple amortization methods
  • Potential derivative exposure
  • Restricted earnings
  • Shocks including start date
  • Simultaneous calls
  • Trade and settlement date accounting

LIMITS AND RULES

Limits have a wide variety of uses and flexibility in achieving a target. Rules can call limits directly to use pre-calculated values or to invoke the full limit process. This mixes the best of limits with the wide range of rules capability. Rules can be specific to strategies, scenarios, and/or conditional on market conditions and simulation results.

  • Dividends and FAS150 mandatorily redeemable stock expense
  • Dynamic funding and hedging
  • Internal policy and regulatory compliance management
  • Inventory rules
  • Trade blotter
  • Liquidity stress testing

OPTIMIZATION

In all facets of portfolio analysis and bank asset/liability management, there are often circumstances where the level of complexity makes it difficult or very time-consuming to find an answer that meets your style and/or policy constraints. ALM supports the capability to solve for a solution to meet a wide range of constraints.

  • Asset allocation
  • Funding
  • Hedging
  • Portfolio construction
  • Single, user-defined, or stochastic scenarios

REINVESTMENT

Throughout the simulation, instruments are generating principal and interest cash flows. Those cash flows can earn reinvestment interest.

  • Full fixed income product coverage
  • Dynamic new products across time, scenario and strategies
  • Target account-level balances, cash, and or/ risk levels

COMPREHENSIVE REPORTING

PolyPaths ALM features comprehensive reporting capabilities including:

  • 50 standard reports for Balance Sheet, Market Value, Book Income, Cash Flows and Risk (Duration, Convexity, Volatility)
  • Stochastic earnings at risk and market value of equity
  • 50 reports for FAS hedge relationships
  • 50 transaction reports on funding, hedges and user-defined relationships
  • Over 400 descriptive and 160 time-series fields

FLEXIBLE ARCHITECTURE

ALM offers a familiar Excel-based interface so that anyone can run income simulations. Alternatively, the entire ALM process and reporting may be automated using our BatchALM tool, allowing PolyPaths ALM to fit seamlessly within a client’s overall work flow.

  • Easy to use Excel Interface
  • Leverages PolyPaths Fixed Income Analytics Suite: AppPort
  • Leverages PolyPaths Distributed Processing (Cloud Supported)
  • Leverages PolyPaths Enterprise DB System

FAST SIMULATION RUN TIMES

ALM separates instrument-level calculations from simulation calculations for faster run times. ALM runs the accounting, aggregation and reporting in minutes including new product, funding, hedging, cash management and risk targeting.

  • Flexible Control over Desired Calculation Settings
  • Utilize Multiple CPUs
  • Distributed Processing Profiles
  • Load and Run Only What You Change
  • Control over Max Jobs
  • Control over Monte Carlo Paths
  • Several Caching Mechanisms
  • Periodic Calculations

MULTIPLE BALANCE SHEET OUTLOOKS

ALM allows for multiple strategies, or potential future balance sheets. For example, strategies can include runoff, static balance sheet, growth, deleveraging, liquidity stress testing, specific hedging rules, etc. Reporting features allow for easy comparisons of projected net interest income (NII), future market values, cash flows, transaction costs, and risk between strategies.

Balance sheets are aggregated up from the instrument level with accounting applied based on your elections. Balance sheets are generated for each strategy, each month, across each scenario.

RIGOROUS QUALITY CONTROL

ALM includes sophisticated tools to validate version changes and easy viewing of transaction reports to reconcile any process, account or instrument.

  • Report Checker Tool: Consistency of Instruments & Reports
  • Global Model Settings
  • Event Viewer: Audit Trail of Project Changes