A Random Parameter Model for Continuous-Time Mean-Variance Asset-Liability Management

Hui-qiang Ma, Meng Wu and Nan-jing Huang

Mathematical Problems in Engineering, 2015, vol. 2015, 1-16

Abstract:

We consider a continuous-time mean-variance asset-liability management problem in a market with random market parameters; that is, interest rate, appreciation rates, and volatility rates are considered to be stochastic processes. By using the theories of stochastic linear-quadratic (LQ) optimal control and backward stochastic differential equations (BSDEs), we tackle this problem and derive optimal investment strategies as well as the mean-variance efficient frontier analytically in terms of the solution of BSDEs. We find that the efficient frontier is still a parabola in a market with random parameters. Comparing with the existing results, we also find that the liability does not affect the feasibility of the mean-variance portfolio selection problem. However, in an incomplete market with random parameters, the liability can not be fully hedged.

Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnlmpe:687428

DOI: 10.1155/2015/687428

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