Asset Liability Management Modelling with Risk Control by Stochastic Dominance

Xi Yang, Jacek Gondzio and Andreas Grothey

Chapter 5 in Asset and Liability Management Handbook, 2011, pp 110-138 from Palgrave Macmillan

Abstract: Abstract The Asset Liability Management (ALM) problem has crucial importance for pension funds, insurance companies and banks whose business involves a large amount of liquidity. Indeed, these financial institutions apply ALM to guarantee meeting their liabilities while pursuing profit. The liabilities may take different forms: pensions paid to the members of the scheme in a pension fund, savers’ deposits paid back in a bank or benefits paid to insurers in an insurance company. A common feature of these problems is the uncertainty of liabilities and asset returns and the resulting risk of underfunding. This con-stitutes a non-trivial difficulty in managing risk in any model applied by the financial institution. The need for multi-period planning additionally compli-cates the problem.

Keywords: Stochastic Programming; Stochastic Dominance; Risk Control; Bender Decomposition; Chance Constraint (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-30723-0_5

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DOI: 10.1057/9780230307230_5

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