【正文】 he management reacts: the operating expenses decrease ? Between demand deposits and mortgages ? When the margin on demand deposits decreases, the margin on mortgages may increase ? The pensation effect modelling has to take into account the risk of “newers” (new petitors on the market) ? If the margins of my pany are too important on a specific product, there is an opportunity for “newers” to take my customers proposing the same product at a lower price. ? ? ???? ? t dssredttr 0 ).(tttt .NIINII.).(.ComdCom ? ? ? ?????????? ????? ??ttdssrdssr eedttrMin00).(t).(tttt .Com,.NIINII.).(.ComCom ?20 New Models for Asset and Liability Management May 2023 New production modelling (1) ? We define the “new production” as all the new contracts that will be signed in the future or as all the flows that will be linked with new customers. ? Stock (existing contracts, existing customers) ≠ New production ? To model the new production, we have to model the number of new contracts to be signed and their characteristics. For A/L Managers, it will be for instance: ? The number of new customers month by month ? Their average amount by account at the opening ? The number of new credits (mortgages…) they will sign and their characteristics… ? The missions (fees) the bank will charge them and the associated operating costs ? With the Stock and the New Production, the A/L Manager is able to simulate the future ine and the sensitivity of the future ine 21 New Models for Asset and Liability Management May 2023 New production modelling (2) ? Law 1 : Invariance of the economic value to financial markets parameters. The economic value that will be produced on future contracts will not depend on the market conditions of the signature date. ? Corollary: the pany produces the same amount of value when interest rates are high or when they are low. ? Example: margins on mortgages and on demand deposits in France ? The new production of customers is done through mortgages production. People are young and usually open their demand deposit account within the bank they sign their mortgage credit. Economic Value ( 3000 € increasing 30 years 0% Demand deposit) + Economic Value (€ 20 years amortising mortgage at long term fixed rate + margin) = Constant (interest rates) M ortg a ge ma rgin in bps0,00%0,05%0,10%0,15%0,20%0,25%0,30%0,0% 2,0% 4,0% 6,0% 8,0% 10,0% 12,0%M ar ke t r ates le v el22 New Models for Asset and Liability Management May 2023 Summary ? Necessity and opportunity to develop new models in ALM ? ALM indicators weaknesses ? ALM Models weaknesses ? ALM IT development ? New ALM models for Customer behaviour ? Amount projection modelling, wealth effect ? Customer arbitrage modelling, pensation effects ? New production modelling ? New ALM techniques to design hedging strategies ? Reconciliation between economic value and accounting value ? ALM delta Hedging ? Taking uncertainty into account ? Conclusion ? Revenue Backtesting ? What about liquidity? 23 New Models for Asset and Liability Management May 2023 Reconciliation between economic value and accounting value ? Economic value is equal to the expectancy of the sum of the actualised future cashflows (linked with the existing customers) ? It is also equal to the expectancy of the sum of the future actualised ines (linked with the existing customers) ? According to “Law 1”, the expectancy of the sum of the actualised cash flows linked with new customers is not sensitive to the financial markets levels ? Consequently, making each future ine expectancy not sensitive to the financial markets level will make insensitive the economic value to the financial markets. In other words, with a high level of modelling, it is possible to reconcile sensitivity indicators and interest rate gap based indicators such as economic capital ?????????? ?? ? ?h ori zo n t).(s toc kt tdssreEEV?????????? ?? ? ?h ori zo n t).(s toc kt tdssreneEEVth ori zo n t).(p rod u ctio n n ewt 0 ??????????? ?? ? t dssreneE ??????????? ?? ??h oriz o n t).(p rod u ctio n n ew s toc k t tdssrenedEV24 New Models for Asset and Liability Management May 2023 Delta hedging in ALM ? Making the ine insensitive is possible through delta hedging techniques. ? Stage 1: putation of the Greeks (Sensitivities of the actualised expected ines) ? Stage 1: Hedging definition ? Delta = forward swaplet ? Gamma = forward Caplet / Floorlet ? Penta = forward CMS swap ? Penta gamma = forward CMS Caplet / Floorlet ? Law 2 : Anaxagoras of Clazomenae “Nothing is lost, nothing is created, everything is transformed”. As for Delta Hedging in the Trading Room, it is possible to replicate the expected ine through the delta hedging strategy ? latter by Lavoisier 171。 rioux, C., 2023. Hedging deposit accounts: a new perspective. Banque et March233。 e, tout se transforme 187。 represents the influence of the interest rate movements on the customer arbitrages between different account types ? For example, the proportion of demand deposits in the total deposits could depend parametrically or not on the savings rate level Vo l u m e eff ec t est i m at i o n%%%%%%%0% 2% 4% 6% 8% 10% 12% 14% 16% 18%mar ket r ateratio M1/M3? ?ttt t Rate Savi ng sDeposit s Savi ng sDeposit s Dem and Deposit s