Page 61 - Risk Management in current scenario

liability duration which pulls down the overall duration of assets
making diffi cult to do duration matching of assets and liability.

So in summary,
1. Duration of liability under regular premium traditional products does
not give sensible value.
2. The duration defi nition can be changed in managing the assets and
liability matching as the purpose is managing the sensitivity of assets
and liability with respect to interest rate.
3. Using the fi rst derivative of assets and liability provide a objective
way in addressing the ALM problem which is otherwise deterred by
absurd value of liability duration.
4. The method can be used in deciding the assets purchasing philosophy
based on sensitivity of liability to interest rate.
5. The timing and value of coupons and redemptions amount can be
adjusted to optimize its value.
6. Other methods such as assets and liability cash fl ows projections
or moving premium into assets side may be used but has challenges.

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