Optimal asset allocation subject to withdrawal risk and solvency constraints

Areski Cousin (), Ying Jiao (), Christian Robert and Olivier Zerbib
Additional contact information
Areski Cousin: IRMA - Institut de Recherche Mathématique Avancée - UNISTRA - Université de Strasbourg - CNRS - Centre National de la Recherche Scientifique
Ying Jiao: LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon
Christian Robert: CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper investigates the optimal asset allocation of a financial institution whose customers are free to withdraw their capital-guaranteed financial contracts at any time. Accounting for asset-liability mismatch risk of the institution, we present a general utility optimization problem in discrete time setting and provide a dynamic programming principle for the optimal investment strategies. Furthermore, we consider an explicit context, including liquidity risk, interest rate and credit intensity fluctuations, and show, by numerical results, that the optimal strategy improves the solvency and the asset returns of the institution compared to the baseline asset allocation.

Keywords: Asset allocation; asset-liability management; withdrawal risk; liquidity risk; utility maximization (search for similar items in EconPapers)
Date: 2021-06-01
New Economics Papers: this item is included in nep-ban, nep-rmg and nep-upt
Note: View the original document on HAL open archive server: https://hal.science/hal-03244380v1
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Related works:
Journal Article: Optimal Asset Allocation Subject to Withdrawal Risk and Solvency Constraints (2022)
Working Paper: Optimal Asset Allocation Subject to Withdrawal Risk and Solvency Constraints (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-03244380

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