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Strategic Balance Sheet Management: Mastering ALM, IRRBB, and Liquidity Risk


Course to improve investment and financing decision-making in financial institutions as well as to measure and manage the structural risks of the balance sheet, such as interest rate risk, exchange rate risk and liquidity. The COVID-19 crisis will force entities to rethink strategies in the short and medium term, to review contingency plans, to optimize cash positions, to create new deposit models with defined maturities and, if possible, to monitor in real time. deposits, credit lines and collaterals.

Another big challenge for the banks' ALM department is the implementation of the Libor transition and the complex creation of the yield curve to value interest rate derivative positions and asset and liability positions. Therefore, the course addresses the following points:


  • Address good practices to mitigate and measure the impact of COVID-19 on ALM.

  • Show the most recent methodologies, strategies and techniques to manage and quantify the structural risks of a bank's Balance Sheet.

  • The recent Basel IV standard approach guidelines for measuring interest rate risk in the banking book (IRRBB) and the requirements for an internal model have been included.

  • Explanation of the impact and implementation of the Libor transition.

  • Tools to create the yield curve with the new reference rates, SOFR in the US and €STER in the EU.

  • Methodologies to measure interest risk are explained, and mitigate it through micro and macro hedges with futures and options.

  • Methodologies to estimate the Economic Value EVE, NII, NIM and EAR are shown. Best practices for implementing both a dynamic repricing GAP and a cap system are explained.

  • The Structural VAR of the exchange rate and variable income in the field of the banking book is explained.

  • Models of prepayment behavior, indefinite maturity deposits and withdrawals of lines of credit are taught under the new post-COVID-19 normality.

  • Liquidity risk management and measurement methodologies are exposed. In addition, Basel III regulatory requirements on liquidity and leverage are included.

  • The optimization of balance sheet positions under post-COVID-19 scenarios is explained in detail.

  • The main FTP and LFTP price transfer systems are explained in detail.

  • The integration of ICAAP and ILAAP is explained.

  • Stress testing models of interest risk and liquidity risk are shown.




The Course is aimed at ALM professionals, CFOs, Risk managers, Treasurers, analysts, pension fund managers, auditors, controllers, regulators and compliance staff.




Price:  7.900 €


  • Europe: Mon-Fri, CEST 16-20 h


  • America: Mon-Fri, CDT 18-21 h

  • Asia: Mon-Fri, IST 18-21 h





Summer Price:  5.900 €

Jun 1 - 31 Aug


Level: Advanced


Duration: 30 h



Presentations PDF

Exercises in R, Python, SAS and Excel



Strategic Balance Sheet Management:

Mastering ALM, IRRBB, and Liquidity Risk



​Module 1: Transition from LIBOR to Reference Replacement Rates


  • The disappearance of Libor / Ibor

  • Libor manipulation

  • RFRs, or risk-free ratios

  • Existing Libor Indices and Proposed Alternative Indices

    • Europe

      • ESTER (‘Euro short-term rate’)

      • Hybrid Euribor

    • USA

      • SOFR (‘Secured overnight financing rate’)

      • Effective Federal Funding Rate

  • Spread between EONIA and ESTER

  • transition phases

  • financial impacts

  • ISDA protocol

  • Changes in risk factors: yield curve and volatility

  • OTC derivatives pricing

  • CCP Trades

  • Impact on xVAs

    • FVA analysis

  • Impact of financial instruments

  • Impact on interest rate derivatives: caps, floors and swaptions

  • New calibration models

  • Management of possible interest rate, market and counterparty risks

  • Impact on IFRS 9: hedging accounting

  • Volatility in the income statement

  • Impact of COVID-19 on the Libor transition



Module 2: Interest rate risk in the Banking Book in Basel IV

  • Definition of IRRBB

  • Risk subtypes:

    • Gap Risk

    • Basis Risk

    • Option Risk

  • Credit Spread Risk in the Banking Book

  • Economic Value and income-based measures

  • IRRBB principles

  • Principles for banks

    • Expectations

    • Risk management methodology

    • Delegation

    • limits policy

    • Definition of Economic Value, dynamic vision

    • Interest rate shocks and stress scenarios.

    • behavior models

    • prepaid

    • Deposits without defined expiration

    • Measurement systems

    • data integrity

    • Governance model

  • Principles for Supervisors

    • Assessment

    • Resources

    • supervisory cooperation

  • Scope and timeline

  • Implementation

  • IRRBB Standard Approach​

  • Standard approach methodology

  • Components

  • Cash Flow Bucketing

  • Process for positions that are amenable to standardization

  • Treatment of deposits without defined maturity

    • Categories

    • Separation

    • Caps on core deposits

  • Treatment of positions with optionalities

  •   Fixed rate loans subject to prepayment

  • Term deposits with redemption risk

  • Add-on for automatic interest rate options

  • Standardized EVE risk measure

  • Interest rate risks for banking book (IRRBB) supervisory outlier tests SOT

  • Exercise 1: Interest rate risk measurement exercise

    • Cash flow bucketing

    • Treatment of deposits without defined maturity

    • Treatment of optionalities, prepaid.

    • EVE standardized

    • Comparison of standardized EVE against IRRBB internal model of economic value

    • Review Supervisory outlier test SOT

Module 3: Yield Curve Libor-OIS and EONIA-Euribor

  • ETTI construction

  • Available instruments

    • Bonuses and Deposits

    • FRAs

    • Interest Rate Swap

    • Basis Swap

    • Cross Currency Swap

  • Using multiple instruments

  • ETTI in practice and main Issues

  • collateralized curve

    • Overnight Index Swaps (OIS)/EONIA

  • Bootstrapping approach in ETTI

    • Euribor curve

    • Eonia curve

  • Focus Interpolation

    • Cubic Splines

    • Basis Splines

  • Nelson Siegel Model Approach

    • Calibration

  • Stochastic modeling

    • Vacicek's model

    • Cox–Ingersoll–Ross model

    • Ornstein–Uhlenbeck model

    • Hull-White model

  • Libor Market Model

  • Martingales and Numerary

  • Calibration of caps and swaptions

  • Multicurve Models

  • SABR models for negative rates

  • Exercise 2: Construction of Euribor and Eonia Interest Rate Term Structure Curve in Python

  • Exercise 3: Construction of the interest rate Term Structure Curve. Case study with deposits, FRAs and Interest Rates Swaps

  • Exercise 4: Real Case Bank of Spain Nelson Siegel exercise in R and Excel

  • Exercise 5: Temporary structure of cubic splines and basis splines in Excel

  • Exercise 6: SABR simulation for negative rates in Python and Excel

  • Exercise 7: Calibration and simulation CIR and Vasicek in R

  • Exercise 8: Ornstein-Uhlenbeck calibration in R

  • Exercise 9: Hull-White Simulation in Python

Module 4: SOFR / €STER Yield Curve

  • Dual Bootsrapping

  • Multi yield curve

  • Calibration and optimization

  • New instruments for SOFR USD

  • Libor vs. ARR Rates

  • New risks to manage

  • Singular calibration curve

  • Global Calibration Interpolation

  • Optimization Model

  • Multi-dimensional Newton-Raphson solver

  • Using Jacobians for recalibration

  • Selection of instruments for calibration ARR Instruments

  • Yield Curve Calibration Steps

  • Requirements to achieve a proper calibration

  • Exercise 10: Multicurve estimation and optimization with Jacobian matrices in Python

  • Exercise 11: Optimization with Jacobians using the Multi-dimensional Newton-Raphson solver

  • Exercise 12: Singular curve estimation

  • Exercise 14: Multicurve estimation with Jacobian matrices

  • Exercise 15: SOFR curve estimation


Module 5: Duration and Convexity


  • Macaulay duration in bonds

  • Modified Duration

  • Convexity

  • Duration and Modified Duration

  • Portfolio duration and convexity

  • Duration of Own Resources

  • Portfolio immunization

  • negative convexity

  • Convertible Bonds

  • Exercise 16: Duration estimation and convexity effect in Excel

  • Exercise 17: Immunization in Excel bond portfolio

  • Exercise 18: Negative convexity and valuation by convertible bond decision trees in Excel and VBA

Module 6: EVE and EAR calculation


  • Yield Curve Stress test

  • Basis Risk Stress Test

  • Principal Components (PCA)

  • Monte Carlo simulation

  • Simulation of stochastic models: CIR, Vacicek, HJM, etc.

  • repricing gap

  • Financial Margin Simulation (EaR)

  • Capital at Risk Methodology

  • Measuring the Economic Value of PR (EVE)

  • Economic value and capital under the ICAAP

  • Gap analysis limits

  • Sensitivity limits of the NII and the equity value

  • Exercise 19: Repricing Gap in R

  • Exercise 20: Estimation of the EVE and EAR adjusted to the Basel III IRRBB criteria

  • Exercise 21: EVE estimation using yield curve stress, basis risk stress and Client behavior


Module 7: VaR of interest rate risk


  • Criteria for the use of VaR

  • VaR of interest rate risk

  • Expected Shortfall

  • delta greek

  • Delta-Gamma VaR

  • volatility smiles

  • volatility surfaces

  • Monte Carlo simulation

  • Treatment of optionality

  • Exercise 22: Smile of volatility and volatility surface in R

  • Exercise 23: Estimation of VaR using Monte Carlo simulation with valuation of optionalities in R


Module 8: Interest rate derivatives and hedges


  • Interest rate derivatives

  • Micro-hedges per operation

  • NII and Gaps macro-hedges

  • Futures and Swaps

  • Forward Rate Agreements (FRAs)

  • Hedging Strategies with Interest Rate Futures

  • Interest Rate Swaps (IRS)

  • Overnight Index Swaps (OIS)

    • Risk-free rate vs OIS

    • OIS zero curve

    • OIS vs Libor

    • Funding risk

    • CVA and DVA

  • Interest rate options

    • Bond Options

    • Caplets/Caps

    • Floorlets/Floors

    • swaptions

    • Necklace

    • reverse necklace

  • Options and Futures on interest rate on SOFR

    • SOFR Options

    • SOFR Swaps

    • SOFR Futures

    • SOFR Trading Resources

  • Valuation models

    • Pricing caps and floors using Black`s Model

    • Pricing with trinomial trees

    • Pricing of Caps and Floors using the Libor Market Model

    • Deep Learning to calibrate and value derivatives

  • Exercise 24: Swaption Pricing in Python

  • Exercise 25: Pricing of caps and floors Black`s model in Excel and Python

  • Exercise 26: Swaption Pricing with Deep Learning

  • Exercise 27: Caplet and Swaption Libor Market Model in Python

  • Exercise 28: Calibration One Factor Hull White Swaption Model with deep learning

Module 9: Measurement of the VaR Credit Spread

  • Credit Spread Risk in the Banking Book

  • Credit Spread Risk in the Trading Book

  • PV01 estimation and correlation matrix

  • Parametric Credit Spread VaR

  • VaR by Monte Carlo Simulation

  • Copulate t-Student

  • Multivariate t-student distribution

  • Exercise 29: Estimation of the Spread VaR of a bond portfolio with Monte Carlo Simulation assuming normal multivariate distribution, multivariate t-student and copula t-student


Module 10: Modeling of liabilities without defined maturity


  • Stable and unstable deposits

  • Non Maturity Deposits (NMD) in Basel IV

  • Statistical models of liabilities

  • Tranches due to deposit volatility

  • Portfolio Replication model and optimization

  • Option-Adjusted Spread Model

  • Expert model to define stable deposits

  • Cash Flow estimation in the financial margin and economic value

  • Econometric and machine learning model of deposits

    • Logistic Regression with behavioral information

    • SVC

    • neural networks

    • Lifetime of deposit accounts

  • Modeling using stochastic interest rate and Credit Spread

  • Projection model with RNN and CNN neural networks

  • Exercise 30: Econometric model and simulation of liabilities without maturity in Excel

  • Exercise 31: Tranches of stable and unstable deposits in Excel

  • Exercise 32: Behavior model with logistic regression, neural networks, and SVC in R

  • Exercise 33: Replicated portfolio approach in Excel

  • Exercise 34: Advanced econometric NMD model with cointegration tests and portfolio replica methodology in R

  • Exercise 35: Projection model with RNN and CNN neural networks

Module 11: Prepayment Modeling


  • Empirical models

  • Statistical models of prepayment probability

  • Machine learning models to estimate prepaid rate

    • Recurrent Neural Networks

    • SVC

    • SVR

    • Feedforward neural network

  • Probability of payment by contract and by credit pool

  • Prepaid Option Models

  • Rational Prepaid Models

  • Factors such as interest rate, seasonality, economic cycle, Burnout factor and trend

  • Study of partial and total prepayments in mortgages

  • Exercise 36: Prepayment exercise in the mortgage portfolio using neural networks and SVR

  • Exercise 37: Econometric and machine learning model of probability of prepayment in R


Module 12: Models for the Use of Credit Lines


  • Estimation of the CCF in the EAD

  • Intensive models of credit line utilization

  • Management of credit lines

  • Marginal distribution of the use of lines of credit

  • Machine Learning models to model the use of credit lines

    • SVC

    • Neural networks

  • Exercise 38: Credit line utilization model in R

  • Exercise 39: Credit line utilization model with neural networks in Python



Module 14: Measurement of Liquidity Risk


  • Liquidity Ratios

  • Basel III LCR and NSFR Liquidity Ratios

  • Liquidity Coverage Ratio

  • Level 1 and 2 Liquid Assets

  • High Quality Liquidity Assets (HQLAs)

  • Net cash outflows

  • Net Stable Funding Ratio

  • Bank planning under Basel III

  • Stochastic optimization model

  • Sources of liquidity risk

  • Main sources of liquidity risk:

  • Intragroup liquidity risk

  • Liquidity risk Off-balance sheet

  • wholesale funding risk

  • retail funding risk

  • Funding cost risk

  • Intraday liquidity risk

  • Cross-currency liquidity risk

  • Asset Risk

  • Funding concentration risk

  • Correlation risk

  • Contagion risk

Module 15: Liquidity Risk Measurement II


  • Funding Liquidity Risk

  • Liquidity measurement

    • Stock Based Approach

    • Cash Flow based Approach

    • Hybrid Approach

  • Cash Flow at Risk

  • Advanced Cash Flow Projection

  • Liquidity Temporary Structure

  • Counterbalancing Capacity

  • Dynamic Liquidity Gap

    • Options in the Dynamic Gap

    • Contractual and behavioral inputs and outputs

  • Design of contingency fund plans

    • Strategies for Plan Implementation

  • Strategies for managing liquidity reserves

    • Liquidity buffer

    • Asset Allocation

    • Asset management based on liquidity measures

    • Liquidity buffer size estimation

    • fund strategies

    • Credit risk management

  • Introduction to Stress Testing in Liquidity Risk

    • Historical Approach

    • Statistical Approach

    • Expert Approach

    • Scenario Analysis

  • Determination of Liquidity Risk Scenarios

  • Steps to Develop a Contingency Funding Plan

  • Intraday Liquidity Risk Management

  • Exercise 40: Global exercise of liquidity and interest rate risk using Dynamic GAP, Basel III liquidity ratios, key liquidity metrics, simulation of Financial Margin and Economic Value through IRRBB in Excel

Module 16: ILAAP Liquidity Self-Assessment


  • Supervisory Review and Evaluation Process (SREP) EU

  • Liquidity risk assessment

    • Assessment of liquidity needs in the short and medium term

    • Intraday liquidity risk assessment

    • Evaluation of the liquidity buffer and counterweight capacity

    • Supervisory liquidity stress testing

  • Funding risk assessment

    • Evaluation of the funding profile

    • Funding profile stability risk assessment

    • Market Access Assessment

    • Assessment of expected changes in funding risks based on the entity's funding plan

  • Internal Liquidity Adequacy Assessment Processes (ILAAP)

    • Common information between ILAAP and ICAAP

    • Inherent liquidity risk

    • Inherent Funding Risk

    • Governance and liquidity risk management

    • Stress testing

    • Contingency Funding Plan

  • Analysis and metrics of liquidity risk and funding risk

    • Maturity ladder

    • concentration of funds

    • fund prices

    • fund rollover

    • Scope and frequency

  • Exercise 41: Fund rollover analysis in Excel



Module 17: Funds Transfer Pricing FTP and LFTP


  • Funds Transfer Pricing FTP

  • Libor transition impact on FTPs

  • Transfer Pricing System

  • Transfer pricing methodologies

  • Multiple Pool TP

  • Income Statement and Financial Margin Pool

  • Matched Maturity FTP

  • FTP Curve Estimation

  • Liquidity cost estimation

  • Matched Maturity TP on Liabilities

  • Impact of Basel III on FTP

  • FTP for loans

  • FTP for deposits

  • FTP for contingent liquidity risk

  • Bottoms Curve Setup

    • Specific Curves Segment

    • Consideration of large Clients

    • Curves Flats

  • Consideration of interest rate strategy and liquidity risk

  • Liquidity Risk Pricing

  • Liquidity Funds Transfer Pricing LFTP

  • LFTP Regulatory Requirements

  • LFTP Requirements

  • Exercise 42: Transfer Prices and ordinary pool margin estimation in Excel.

  • Exercise 43: Transfer Pricing Matched Maturity Approach

  • Exercise 44: LFTP conditioned to Basel III liquidity risk



Module 18: Reverse Liquidity Stress Testing


  • Introduction of Reverse Stress Testing

  • Funding Liquidity Risk

  • Stress testing of Funding Liquidity Risk

  • Cost of funds in times of crisis and normal

  • Identification of risk factors in funds

  • Funding Risk Score

  • Assignment of critical values

  • Calculation of survival periods

  • Control panel

  • Impact of funding risk on the bank

Module 19: Stress Testing of Liquidity Risk

  • Stress Testing Requirements for ILAAP

  • Consistency between Risk Appetite and Stress Testing the ILAAP

  • Adverse scenarios that produce a shock to liquidity risk

  • Liquidity actions

  • Magnitude of outflows from deposit accounts

  • Factors Related to Liquidity Stress

    • Deposits

    • Commitments

    • Guaranteed financing

    • Wholesale financing

    • Intraday liquidity

    • Counterweight capacity

    • Securities lending

  • Stress testing methodologies in liquidity risk

    • Bottom-up approach

    • Top-Down Approach

    • hybrid approach

    • Assessment of the methodologies

  • Stage design

    • Benchmark Liquidity Stress Scenarios

    • Modeling of Haircuts and Add-ons

    • Magnitude Run-Off Rates

    • Link of liquidity and solvency

  • Modeling and Stress Tresting of the Run-Off with econometric models

  • Stress Testing in Contractual Cash Flows

  • Stress Testing in behavioral cash flows

  • Global Exercise 45: Stress Testing of liquidity risk in financial statements, simulation of macroeconomic scenarios, impact on behavioral and contractual flows and Run-off rates in SAS and R


Module 20: Stress Testing of Interest Rate Risk

  • Scenarios and Stress Testing in the IRRBB

  • Interest Rate Parameter Shock Methodology

  • NII after the Interest Rate Shock

  • Stress testing yield curve

  • Interest rate and currency scenarios for internal management

  • Interest rate scenarios for stress testing

  • IRRBB Stress testing program

  • Governance Stress Testing

  • Stress testing in behavior models and economic environment

  • Exercise 46: Monte Carlo simulation, macroeconomic scenarios, impact on EVE and financial margin adverse yield curve scenarios and adverse macroeconomic changes



Module 21: Risk Appetite in liquidity risk and IRRBB


  • Risk Appetite in the ICAAP and ILAAP

  • Stress Testing

  • Definitions and analysis:

    • Risk appetite framework

    • Risk Appetite Statement

    • Risk Tolerance

    • Risk Capacity

    • Risk Profile

    • Risk Limits

  • Risk appetite statement

  • Risk appetite statement management in liquidity risk

    • Establishment of the appropriate level of Risk appetite

    • Liquidity risk statement – Limit of tolerance approach

    • Liquidity risk statement – scenario-based approach

  • Liquidity Reserve

    • Decision between a buffer or a reserve

    • Risk Appetite Monitoring

  • Risk Appetite and IRRBB limits

Module 22: Stress Testing ALM


  • Stress Testing in asset and liability management

  • Principles of Effectiveness of the RA Statement

  • Establishment of Limits and Metrics:

  • KPIs and KRIS

  • Regulatory Stress Testing

  • Limits on Risk Weight Assets

  • capital planning

  • IRRBB Economic and Regulatory Capital

  • NSFR and LCR Liquidity Position

  • Leverage Ratio


  • Difference between traditional and Risk Appetite limits

  • Best Practices in RA Statement

  • Monitoring and Validation of Risk Appetite

  • Global Exercise 47: Stress Testing, Global Economic Capital and Risk Appetite in Excel:

  • Capital estimation for interest risk

  • Risk Appetite for liquidity risk

  • Limits in the gap analysis

  • Dashboard with leverage ratio, regulatory liquidity ratios, KRIs, KPIS

  • Impact of stress testing on CET1, RWAs, P&L and Balance Sheet in 12 quarters



Module 23: Balance Sheet Optimization


  • Balance Sheet Optimization

  • Definition of post-COVID-19 scenarios

  • Stochastic and Dynamic Scenario Trees

  • dynamic programming

  • Multiperiod Stochastic Dynamic Programming

  • Maximization of the financial margin and economic value

  • Application of economic and financial theories

  • Conditioning factors of liquidity, capital and Basel III

  • COVID-19 Stress Testing Scenarios

  • Optimization of the Capital Adequacy Ratio (CAR)

  • Determinants of IRRBB Risk Appetite

  • Exercise 48: Optimization of coverage ratios and stable financing with Excel Solver

  • Exercise 49: Optimization of the financial margin subject to restrictions of the leverage ratio, NSFR liquidity, LCR and capital, using multi-period stochastic programming



Module 24: Treatment of cryptographic exposures


  • The prudential treatment of crypto assets

  • Classification group 1, 2 and out of range

  • Classification conditions

  • ​Responsibilities for determining and monitoring compliance with classification conditions

  • Capital requirements of group 1 crypto assets

    • Group 1a Crypto Assets: Tokenized Traditional Assets

      • Credit and market risk

    • Group 1b crypto assets: crypto assets with stabilization mechanisms Stablecoins

      • Holders who can operate directly with the redeemer

      • Non-member holders

    • Bankruptcy Remote Vehicle Treatment for Crypto Assets with an Underlying Pool of Assets

    • ​Equity Investment in Funds approach to crypto asset credit risk with a pool-backed stabilization mechanism

  • ​Capital requirements for Group 2 crypto assets

    • Other regulatory requirements

    • levarage ratio

    • great exhibitions

    • Liquidity ratios

  • Supervisory review and adjustments to Pillar 1 requirements

  • Bank responsibilities

    • ​Risks attributable to operational and cyber risk.

    • Risks attributable to the underlying technology.

    • Risks attributable to money laundering and terrorist financing

  • ​Supervisor Responsibilities

  • Disclosure Requirements for Crypto Assets

  • Treatment of derivatives that refer to Group 2 crypto assets



Module 25: Contingency Financing Plans

  • Contingency Funding Plans CFP

  • Sources of Contingent Liquidity Risk

  • The underlying risk characteristics that define the need for contingency plans

  • The underlying risk characteristics that define the structure of contingency plans

  • Confidence on access to wholesale markets

  • Recognition of problems in the real world

  • Interconnection between contingency fund plans and liquidity policies

  • General requirements in contingency plans

  • Specific requirements in contingency plans

  • Exhaustive elaboration of Triggers

  • Action plans

  • Committee crisis management teams

  • Reporting

  • Importance of effective communication

  • Administration Plan

  • Test plan

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