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Strategic ALM

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Classical ALM allows a company to match liabilities with assets in what is called a neutral position, based on the best estimate of the structure of the liabilities. It is often useful for a company to deliberately deviate from this neutral position to achieve a strategic goal like a specific target for dividend or growth while achieving an optimal return for the share holders. Strategic Asset Liability Management (SAM) is a top down approach that can be used to steer this mismatch from the neutral position so that the overall company goals are met.

To support companys in ther strategic ALM Benoist & Company have developped the Strategic Asset-Liability Management tool SAM. SAM is based on a multiperiodic simulation of the long term development of the company. The long term results are then used to find the short term strategy that is best suited to achieve the long term goals.

The preferences or targets of the company must be modeled in an objective function which can e.g. include terms that measure the total return of investment for shareholders or different regulatory constraints. The input for the objective function is calculated in the stochastic multiperiodic firm model which simulates the firm value and other relevant quantities from a set of representative assets and/or liabilities scenarios. By evaluating the objective function for different company strategies a set of close to optimal strategies can be found.

                                                                                         

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