  This article is part of a comprehensive research project on liquidity risk in
asset management, which can be divided into three dimensions. The first
dimension covers the modeling of the liability liquidity risk (or funding
liquidity), the second dimension is dedicated to the modeling of the asset
liquidity risk (or market liquidity), whereas the third dimension considers the
management of the asset-liability liquidity risk (or asset-liability matching).
The purpose of this research is to propose a methodological and practical
framework in order to perform liquidity stress testing programs, which comply
with regulatory guidelines (ESMA, 2019, 2020) and are useful for fund managers.
In this third and last research paper focused on managing the asset-liability
liquidity risk, we explore the ALM tools that can be put in place to control
the liquidity gap. These ALM tools can be split into three categories:
measurement tools, management tools and monitoring tools. In terms of
measurement tools, we focus on the computation of the redemption coverage ratio
(RCR), which is the central instrument of liquidity stress testing programs. We
also study the redemption liquidation policy and the different implementation
methodologies, and we show how reverse stress testing can be developed. In
terms of liquidity management tools, we study the calibration of liquidity
buffers, the pros and cons of special arrangements (redemption suspensions,
gates, side pockets and in-kind redemptions) and the effectiveness of swing
pricing. In terms of liquidity monitoring tools, we compare the macro- and
micro-approaches of liquidity monitoring in order to identify the transmission
channels of liquidity risk.
