A path integral approach to asset-liability management

Marc Decamps, Ann De Schepper and Marc Goovaerts

Physica A: Statistical Mechanics and its Applications, 2006, vol. 363, issue 2, 404-416

Abstract: Functional integrals constitute a powerful tool in the investigation of financial models. In the recent econophysics literature, this technique was successfully used for the pricing of a number of derivative securities. In the present contribution, we introduce this approach to the field of asset-liability management. We work with a representation of cash flows by means of a two-dimensional delta-function perturbation, in the case of a Brownian model and a geometric Brownian model. We derive closed-form solutions for a finite horizon ALM policy. The results are numerically and graphically illustrated.

Keywords: Functional integral; ALM; δ-Function perturbation; Local time; Spectral method (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:363:y:2006:i:2:p:404-416

DOI: 10.1016/j.physa.2005.08.059

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