A method for strategic asset-liability management with an application to the Federal Home Loan Bank of New York

Strategic asset-liability management is a primary concern in today's bankin g environment. In this paper, we present a methodology to assist in the pro cess of asset-liability selection in a stochastic interest rate environment . In our approach, a quadratic optimizer is embedded in a simulation model and used to generate patterns of dividends, market value and duration of ca pital, for randomly generated interest rate scenarios. This approach can be used to formulate, test, and refine asset-liability strategies. We present results of applying this methodology to data from the Federal Home Loan Ba nk of New York.