Institutional Investments and Asset Liability Management


Course Objective

After successfully completing this course students:
- are able to use quantitative skills to answer specific questions
related to fixed income and asset allocation;
- understand and be able to apply standard fixed income concepts such as
duration, DV01 and convexity;
- understand the characteristics of interest rate swaps and be able to
apply the usage of interest rate swaps in the context of balance sheet
interest rate risk management;
- understand the pricing of inflation-linked bonds and inflation swaps;
- understand the pricing approach for non-linear interest rate
- understand how strategic asset allocation works in theory;
- be able to derive and assess the strategic asset allocations for
institutional investors in a practical context;
- are able to effectively communicate your findings to the relevant
stakeholders, in written and presentational form.

Course Content

We aim to achieve the following goals with this course:

1. Students should achieve advanced knowledge of the investment process
of institutional investors, like pension funds, and the concept of
balance sheet management (ALM: Asset and Liability Management)

2. Students should acquire a thorough knowledge of the developments in
fixed income space, in particular the recent advances in the pricing of
fixed income derivatives like swaps and swaptions

We try to reach these goals as follows:

Week 1: a broad introduction to pension funds. Specifically, we give an
overview of the Dutch pension system, some basic definitions, and the
regulatory framework. In addition to that, the investment problem of a
pension fund is explained and subsequently linked to the investment
decision problems that were treated in earlier courses. Also in week 1,
we give an introduction to interest rate risk on the balance sheet of
institutional investors.

Week 2 and 3: focus on fixed income derivatives: which instruments are
available, how do they work, how to price, what are the risks and which
tools are available to manage those risks? The approach taken won't be
purely theoretical, we'll have a clear focus on the practical usage of
fixed income derivatives.

Week 4 and 5: focus on strategic asset allocation for institutional
investors. We give both an academic and an applied treatment of this
problem. We won't solely focus on interest rate risk management but will
also look at the practical consequences of strategic choices on equity
investing and currency hedging.

Week 6: we'll organize a guest lecture in this final week and we'll also
have the presentation session resulting from the second case.

In this course we work closely together with Ortec Finance. Consequence
is that we'll be able to establish a strong link between academic theory
and practical application.

Teaching Methods

Lectures (2 times 2 hours per week) and a weekly working class (2 hours)

Method of Assessment

- Written exam;
- Two cases;
- Cases count for 20% of final grade;
- Participation in the cases is mandatory: if students do not
participate, they cannot pass for the course


- Hull: Options, Futures and Other Derivatives (8th Edition)
- Additional course material (e.g. academic papers) will be provided on

Additional Information

This course brings students up to date with the recent developements in
the field of fixed income derivatives and institutional investments. To
do so efficiently, the course builds on earlier courses.

General Information

Course Code E_FIN_IIALM
Credits 6 EC
Period P4
Course Level 400
Language of Tuition English
Faculty School of Business and Economics
Course Coordinator dr. M. Boes
Examiner dr. M. Boes
Teaching Staff dr. M. Boes

Practical Information

You need to register for this course yourself

Last-minute registration is available for this course.

Teaching Methods Lecture, Study Group
Target audiences

This course is also available as: