Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5077638 | Insurance: Mathematics and Economics | 2006 | 26 Pages |
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.
Related Topics
Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Mei Choi Chiu, Duan Li,