An Application of Chance Constrained Programming to Portfolio Selection in a Casualty Insurance Firm

N. H. Agnew, R. A. Agnew, J. Rasmussen and K. R. Smith
Additional contact information
N. H. Agnew: System Development Corporation, Dayton, Ohio
R. A. Agnew: Air Force Institute of Technology, WPAFB, Ohio
J. Rasmussen: Wesleyan University, Connecticut
K. R. Smith: University of Wisconsin

Management Science, 1969, vol. 15, issue 10, B512-B520

Abstract: The problem of portfolio selection is discussed with special emphasis on the casualty insurance firm. A single period optimisation model is developed in which expected return is maximized subject to a chance constraint requiring return to be greater than some lower bound with a stipulated probability. It is demonstrated that this approach provides an operational means of selecting a Baumol efficient portfolio. Additional chance constraints are used to maintain the firm's liquidity. The evaluation of optimal portfolios is discussed and the evaluators for the portfolio model are developed. Finally, an example is provided.

Date: 1969
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