Modernising Cash Flow Matching

Cash flow matching – one of the oldest techniques for matching assets to liabilities – is a simple process, yet extremely difficult to perfect. A British actuary, Frank Redington, first proposed a way to simplify the problem in the 1950s and today’s methods of asset-liability management have built on these pre-computer concepts. Best practice today seeks to satisfy a broader set of objectives such as credit quality constraints and requirements to achieve a return on capital subject to a limit on capital.

At Cameron Hume we use so-called key rate curves for ALM; this allows very accurate approximations to actual cash flows while combining sufficient control of exposures, stable solutions and intuitively simple means of monitoring the net exposures of the assets and liabilities.

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