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sundwarf
05-12-2008, 07:45 PM
Let me throw in another problem here...

I remember there was a question asking if the duration adjustment from 4.7 to 4.1 will violate the ALM guidelines in the case study. Then the question ask what other factors will affect the guidelines.

I think the guideline mentioned something like delta/rho of asset - delta/rho of liability <10% of delta of blahblah... So I started from there and wrote some BS. Is it the right approach to that problem? Any thoughts?

iamsupertc
05-12-2008, 08:03 PM
that's what i did too...

Let me throw in another problem here...

I remember there was a question asking if the duration adjustment from 4.7 to 4.1 will violate the ALM guidelines in the case study. Then the question ask what other factors will affect the guidelines.

I think the guideline mentioned something like delta/rho of asset - delta/rho of liability <10% of delta of blahblah... So I started from there and wrote some BS. Is it the right approach to that problem? Any thoughts?

waha
05-12-2008, 09:22 PM
Sorry, I beg to differ. I believe that the case study has something about asset duration * bookvalue of asset - liability duration * lbook value of liability < 30% of bookvalue of asset. So when the liability duration gets adjusted from 4.7 to 4.1, that obviously violated this specific guideline. Since originally the asset duration is almost the same as liability (4.6 vs. 4.7) so you need to adjust asset duration to around 4.4 in order to meet the guideline under the newly adjusted system.

iamsupertc
05-12-2008, 10:33 PM
ah I apologize for my rottened short term memory... now that you mentioned BV and dollar duration, I concur with your solution...

Sorry, I beg to differ. I believe that the case study has something about asset duration * bookvalue of asset - liability duration * lbook value of liability < 30% of bookvalue of asset. So when the liability duration gets adjusted from 4.7 to 4.1, that obviously violated this specific guideline. Since originally the asset duration is almost the same as liability (4.6 vs. 4.7) so you need to adjust asset duration to around 4.4 in order to meet the guideline under the newly adjusted system.

The Smokin' Cracktuary
05-13-2008, 08:16 AM
Sorry, I beg to differ. I believe that the case study has something about asset duration * bookvalue of asset - liability duration * lbook value of liability < 30% of bookvalue of asset. So when the liability duration gets adjusted from 4.7 to 4.1, that obviously violated this specific guideline. Since originally the asset duration is almost the same as liability (4.6 vs. 4.7) so you need to adjust asset duration to around 4.4 in order to meet the guideline under the newly adjusted system.

Uh..... ok.

I just spit out some BS about lengthening the asset duration with zero coupon bonds and some such crap. When they asked how they should bring it back within the guidlines, I thought they wanted a recommendation on assets to buy to achieve the goal.

Did they want an actual technical explaination for that part? Oops.

remilard
05-13-2008, 08:56 AM
Uh..... ok.

I just spit out some BS about lengthening the asset duration with zero coupon bonds and some such crap. When they asked how they should bring it back within the guidlines, I thought they wanted a recommendation on assets to buy to achieve the goal.

Did they want an actual technical explaination for that part? Oops.

I think I just mentioned some options and spit out those lists about the advantages and disadvantages of treasuries and futures for hedging. I think I ended up recommending futures because they were cheaper and left the existing strategy undisturbed (verbiage from a completely different card but it seemed reasonable at the time).

Mr. BoH
05-13-2008, 09:30 AM
I recommended selling bonds and moving to cash to lower asset duration. My rationale was this had the added benefit of improving liquidity, which would be important since the surrender charge period was about to end (and presumably withdrawals would increase).

waha
05-13-2008, 09:39 AM
I recommended selling bonds and moving to cash to lower asset duration. My rationale was this had the added benefit of improving liquidity, which would be important since the surrender charge period was about to end (and presumably withdrawals would increase).

That is almost exactly what I said since the surrender charge period was almost over so cash is the king.

The Smokin' Cracktuary
05-13-2008, 09:52 AM
I am officially confused. Wasn't it the asset duration that dropped to 4.1 in the problem?

I am guessing from the way everyone is talking that it was the liability duration that changed, which I suppose makes much more sense.

Hopefully they cut me slack on the fact that I clearly read the question wrong and grade it based on how I read it.

waha
05-13-2008, 10:56 AM
I think it was the liability duration dropped to 4.1.

sundwarf
05-13-2008, 11:04 AM
I think it was the liability duration dropped to 4.1.

Ditto. Anyone remember if this is a 6 point or 8 point question?

Car'a'carn
05-13-2008, 11:17 AM
Ditto. Anyone remember if this is a 6 point or 8 point question?

6 IIRC.

Caramel
05-13-2008, 06:46 PM
Uh..... ok.

I just spit out some BS about lengthening the asset duration with zero coupon bonds and some such crap. When they asked how they should bring it back within the guidlines, I thought they wanted a recommendation on assets to buy to achieve the goal.

Did they want an actual technical explaination for that part? Oops.

Does anyone has a copy of LifeCo Case Study in hands? Because if you go to page 37 till the end (last appendix), it actually tells you:

1) if any assets/liabilities for every product-line has a mis-match in effective duration
2) the amount of the mis-match (dollar duration) and if this mis-match is within the specified guideline.

So, the answers were handed over to us, it seems...(not for the one that Liab Dur is adjusted to 4.1), but for all other product-line.

The Smokin' Cracktuary
05-14-2008, 09:37 AM
Does anyone has a copy of LifeCo Case Study in hands? Because if you go to page 37 till the end (last appendix), it actually tells you:

1) if any assets/liabilities for every product-line has a mis-match in effective duration
2) the amount of the mis-match (dollar duration) and if this mis-match is within the specified guideline.

So, the answers were handed over to us, it seems...(not for the one that Liab Dur is adjusted to 4.1), but for all other product-line.

Yeah, I did the problem right. I just did it as if the asset duration had changed rather than the liability duration.