Intelligence & Judgment
Model Sense connects ALM modeling knowledge to practical use: a practitioner book, an interactive modeling lab, and a deposit-modeling masterclass for the bank treasury and risk teams who build, validate, and defend these models.
About
Creator, Model Sense · ALM modeling practitioner
Models are tools, not oracles. They can be useful without being precise or accurate all the time.
Model Sense exists on a single premise: that models are tools, not oracles. They can be useful without being precise or accurate all the time, and knowing the difference between a model that is useful and one that is merely elaborate is the central discipline of responsible ALM practice.
The practice was founded to fill a gap in how ALM modeling knowledge is transmitted. The textbook treatments are either too theoretical for practitioners or too product-specific to be portable. The practitioner who built something useful rarely has time to explain it at length, and the explanation is usually compressed into a conference slide. Model Sense is an attempt to slow that down: to take the behavioral models that actually drive bank balance sheet risk, work through the mechanics honestly, and teach them in a way that transfers across institutions, regulators, and rate environments.
The vehicles are a forthcoming book with Palgrave Macmillan, hands-on training for practitioners who need to build or defend these models, and a browser-based ALM Model Lab that makes the mechanics visible without a vendor black box. The thread across all of them is the same: intellectual honesty, fit-for-purpose thinking, and the practitioner's obligation to know what a model cannot do.
Forthcoming · Palgrave Macmillan
Under contract with Palgrave Macmillan, with the manuscript due in January 2027. The book teaches the principles of ALM modeling and the literacy between behavioral models and the measurements they feed: gap, funds transfer pricing, replicating portfolios, EVE, NII, and survival horizon.
The organizing thesis is George Box: all models are wrong, but some are useful. Every chapter approaches its model class from a risk-aware perspective, pairing the conceptual framework with hands-on mechanics. A single running example, a $6 billion digital bank named AI First Bank, carries the reader from first principles through model governance. The recurring anchor is the 2023 bank failures, where deposit behavior and interest rate risk converged in a way that made transparent, fit-for-purpose models matter more than elegant ones.
Practical ALM Behavioral Modeling
How Deposit Behavior, Interest Rate Risk, and Liquidity Shape Bank Balance Sheets
Chih Chen
Palgrave Macmillan
Interactive
A browser-based modeling lab. It bootstraps the SOFR curve, calibrates Hull-White and BGM/LMM rate models, runs Monte Carlo simulation, and drives the behavioral and ALM analytics that connect rates to the balance sheet. No install, no vendor black box; the assumptions are explicit and the mechanics are visible.
Bootstrap the SOFR curve. Calibrate Hull-White 1F and BGM/LMM to cap and swaption surfaces. Simulate forward paths with Monte Carlo.
Mortgage prepayment under an S-curve CPR model. Non-maturity deposit decay with a logistic closure overlay.
Repricing gap, liquidity gap, funds transfer pricing, and the Sensitivity-Equivalent Gap that bridges behavior to risk measures.
Fixed and floating loans, non-maturity deposits, and the cash-flow engine they share across every analytic.
On the roadmap
Mapping non-maturity deposits to a tractable portfolio of fixed-maturity tranches.
The book's running balance sheet, modeled end to end inside the Lab.
A portfolio optimizer connecting balance sheet composition to repricing gap, NII sensitivity, and EVE targets.
Calibrate to the bundled 30 September 2025 market snapshot, simulate a rate path, and watch a deposit book decay against it. Built as the book's companion playground.
Live training
A focused program on building deposit behavioral models that hold up in practice: non-maturity deposit decay, dynamic rate-sensitive betas, the separation of surge from core, and the link from deposit behavior to net interest income and economic value of equity. Built for treasury and risk professionals who need models they can defend to an examiner and to an ALCO.
What it covers
Research & writing
Selected research on deposit behavior, interest rate risk, and the bridge from repricing gaps to risk measures.
SSRN Working Paper · 2026
An asymmetric S-curve model for estimating MMDA deposit betas, incorporating volatility adjustment to capture rate-environment-dependent pass-through dynamics.
SSRN Working Paper · 2025
A regime-conditional framework for nonmaturity deposit modeling that moves beyond fixed core/transactional splits toward rate-environment-aware segmentation.
Journal of Risk Management in Financial Institutions · 2025
Examines how deposit behavioural assumptions propagate into IRRBB sensitivity metrics and quantifies the effect on EVE and NII risk measures.
BTRM Working Paper Series #23 · 2025
Decomposes NMD decay into interest rate and credit spread components, enabling more granular behavioral modeling of deposit runoff under stress.
BTRM Working Paper Series #20 · 2024
A worked illustration of how deposit modeling choices flow through to EVE and NII sensitivity outputs under standard IRRBB shock scenarios.
Get in touch
For the book waitlist, masterclass registration, or a question about the ALM Model Lab, send a note.
Email Model Sense