Under the safety-first principle (Roy in Econometrica 20:431–449, 1952), one investment goal in asset-liability (AL) management is to minimize an upper bound of the ruin probability which measures the likelihood of the final surplus being less than a given target level. We derive solutions to the safety-first AL management problem under both continuous-time and multiperiod-time settings via investigating the relationship between the safety-first AL management problem and the mean-variance AL management problem, and offer geometric interpretations. We classify investors under the safety-first principle as safety-first greedy and nongreedy investors and discuss corresponding optimal strategies for them. Copyright © 2009 Springer Science+Business Media, LLC.
|Journal||Journal of Optimization Theory and Applications|
|Publication status||Published - Dec 2009|
CitationChiu, M. C., & Li, D. (2009). Asset-liability management under the safety-first principle. Journal of Optimization Theory and Applications, 143(3), 455-478. doi: 10.1007/s10957-009-9576-6
- Portfolio selection
- Asset-liability management
- Efficient frontier