Description: This article will evaluate two different novel techniques for approximating change in value of a portfolio due to the change in the interest rates that do not rely on the industrywide ALM metrics. These approaches use deterministic runs created to understand the range where ALM metrics could be relied on and one of these techniques could be more superior to the use of key rates for managing one’s portfolio when they are used in approximating value change for a change in interest rate.

Description: This paper provides a novel approach to the valuation of the market value of economic surplus that is stable and immune from “market noise”.

Description: This article will examine four approaches under two different methods (eight in total) used to combat the non-additivity of key rates and will compare them under a number of rate environments.

Description: Introduces the concept of total risk analysis, a methodology used to answer questions like "what are the chances we will lose more than $1 million"

Description: This article will highlight the issue that the sum of key-rate metrics does not add to metrics derived by parallel shift to the entire curve, even at very low shift size. Additionally, in the article I will outline how to define a single rate change to be applied to a key rate (or the entire curve) since the rate changes are generally not level or parallel.

Description: Since most cash flows being discounted in the value calculation are dependent on the forward rates, in the key-rate calculation forwards (not spots) should be shifted. I will show that if spots are shifted up/down, they would not necessarily result in forwards being up/down for all the years in the particular key rate, resulting in unexpected results. I will further show how metrics calculated by shifting forwards versus spots enhance the accuracy of the approximation of projected value in various rate environments.

Description: There will be inflection points in the value of an instrument when interest rates change. These inflection points could materially impact the approximation of value change using ALM metrics. In this part of the seven-part series, I will highlight: • How to identify the inflection points; • the range of rate changes where ALM metrics may be relied upon i.e., the “validity” range, outside of which recalculation of the ALM metrics is required and the potential that one needs to rebalance the portfolio; • a technique to improve on the approximation of value change beyond the validity range; and • a technique to convert non-linear change on the yield curve to be used with duration and convexity.