Asset/liability modeling is the process used to manage the business and financial objectives of a financial institution or an individual through an assessment of the portfolio assets and liabilities in an integrated manner. The process is characterized by an ongoing review, modification and revision of asset and liability management strategies so that sensitivity to interest rate changes are confined within acceptable tolerance levels. Different models use different elements based on specific needs and contexts. An individual or an organization may keep parts of the ALM process and outsource the modeling function or adapt the model according to the requirements and capabilities of relevant institutions such as banks, which often have their in-house modeling process. There is a vast array of models available today for practical asset and liability modeling and these have been the subject of several research studies. Asset/liability modeling (pension) In 2008, a financial crisis drove the 100 largest corporate pension plans to a record $300 billion loss of funded status. In the wake of those losses, many pension plan sponsors reexamined their pension plan asset allocation strategies, to consider risk exposures. A recent study indicates that many corporate defined benefit plans fail to address the full range of risks facing them, especially the ones related to liabilities. Too often, the study says, corporate pensions are distracted by concerns that have nothing to do with the long-term health of the fund. Asset/liability modeling is an approach to examining pension risks and allows the sponsor to set informed policies for funding, benefit design and asset allocation. Asset/liability modeling goes beyond the traditional, asset-only analysis of the asset-allocation decision. Traditional asset-only models analyze risk and rewards in terms of investment performance. Asset/liability models take a comprehensive approach to analyze risk and rewards in terms of the overall pension plan impact. An actuary or investment consultant may look at expectations and downside risk measures on the present value of contributions, plan surplus, excess returns (asset return less liability return), asset returns and any number of other variables. The model may consider measures over 5-, 10- or 20-year horizons, as well as quarterly or annual value at risk measures. Pension plans face a variety of liability risks, including price and wage inflation, interest rate, and longevity. While some of these risks materialize slowly over time, others – such as interest rate risk – are felt with each measurement period. Liabilities are the