Asset-liability management under time-varying investment opportunities |
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Authors: | Robert Ferstl Alex Weissensteiner |
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Institution: | a Department of Finance, University of Regensburg, Germany b School of Economics and Management, Free University of Bolzano, Italy |
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Abstract: | Stochastic linear programming is a suitable numerical approach for solving practical asset-liability management problems. In this paper, we consider a multi-stage setting under time-varying investment opportunities and propose a decomposition of the benefits in dynamic re-allocation and predictability effects. We use a first-order unrestricted vector autoregressive process to model asset returns and state variables and include, in addition to equity returns and dividend-price ratios, Nelson/Siegel parameters to account for the evolution of the yield curve. The objective is to minimize the Conditional Value at Risk of shareholder value, i.e., the difference between the mark-to-market value of (financial) assets and the present value of future liabilities. |
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Keywords: | C61 G11 |
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