Dynamic asset liability management with tolerance for limited shortfalls

Jerome Detemple and Marcel Rindisbacher

Insurance: Mathematics and Economics, 2008, vol. 43, issue 3, 281-294

Abstract: A dynamic asset allocation problem in the presence of liabilities is considered. The fund manager has von Neumann-Morgenstern preferences with terminal utility function defined over the excess of liquid wealth over a minimum liability coverage tolerated and intermediate utility function defined over dividends, the excess of expenditures over liability cash flows. Preferences incorporate a parameter controlling the tolerance for a shortfall in the funding ratio at the terminal date. The optimal asset allocation rule is derived and its sensitivity with respect to the parameters of the model is analyzed.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:43:y:2008:i:3:p:281-294

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