Risk Books A Guide to Behavioural Modelling for ALM

Client behaviour deeply impacts a bank's liquidity, funding, interest-rate position and, consequently, the management of its asset/liability mismatch and related profitability. Therefore it is imperative that risk managers and modellers alike understand how to model client behaviour according to the needs of their business. It is the aim of this book to improve that understanding and highlight modelling techniques from the simple through to the complex, offering a broad suite of tools to improve the management of an institution's balance sheet. Since the 2008 global financial crisis, there has been increasing interest from external stakeholders (regulators, shareholders, institutional investors) in understanding how client behaviour impacts banks profitability, as well as how banks manage their liquidity, funding and interest rate risk. Matteo Formenti and Umberto Crespi of UniCredit Group have gathered together chapter authors from across the globe who are all experts in their field. This book will aim to explain in a simple and effective way how it is possible to model client behaviour for the proper management of an institution's balance sheet, and to expand the readers knowledge of the drivers behind behavioural models. The book is divided into five parts: >> Part I: An Introduction to IRRBB >> Part II: NMD Behavioural Models >> Part III: Prepayment Behavioural Models >> Part IV: Behavioural Models for Non-performing Exposure and Non-committed Lines >> Part V: Accounting and Hedging and is required reading for model developers, risk managers, model validators and the regulators whose job it is to understand how institutions approached the regulatory requests. A Guide to Behavioural Modelling proves that modelling client's behaviour involves several stakeholders, and can improve the awareness of business decisions in different areas - liquidity, funding, interest rate, internal transfer systems- but that there is no one-size-fits-all modelling solution. Rather, different approaches, from the simple to the most-advanced, are equally appropriate depending on the needs of the institution.