Asset and liability management under a continuous-time mean-variance optimization framework

Mei Choi CHIU, Duan LI

Research output: Contribution to journalArticlespeer-review

121 Citations (Scopus)

Abstract

Asset and liability (AL) management under the mean–variance criteria refers to an optimization problem that maximizes the expected final surplus subject to a given variance of the final surplus or, equivalently, minimizes the variance of the final surplus subject to a given expected final surplus. We employ stochastic optimal control theory to analytically solve the AL management problem in a continuous-time setting. More specifically, we derive both the optimal policy and the mean–variance efficient frontier by a stochastic linear quadratic control framework. Then, the quality of the derived optimal AL management policy is examined by comparing it with those in the literature. We further discuss consequences of a discrepancy in objectives between equity holders and investors of a mutual fund. Finally, the optimal funding ratio, i.e., the wealth-to-liability ratio, is determined. Copyright © 2006 Elsevier Ltd. All rights reserved.
Original languageEnglish
Pages (from-to)330-355
JournalInsurance: Mathematics and Economics
Volume39
Issue number3
DOIs
Publication statusPublished - 01 Dec 2006

Citation

Chiu, M. C., & Li, D. (2006). Asset and liability management under a continuous-time mean-variance optimization framework. Insurance: Mathematics and Economics, 39(3), 330-355. doi: 10.1016/j.insmatheco.2006.03.006

Keywords

  • Asset–liability management
  • Portfolio selection
  • Efficient frontier
  • Linear-quadratic control

Fingerprint Dive into the research topics of 'Asset and liability management under a continuous-time mean-variance optimization framework'. Together they form a unique fingerprint.