Fat Tails and Optimal Liability Driven Portfolios

Jan Rosenzweig

Papers from arXiv.org

Abstract: We look at optimal liability-driven portfolios in a family of fat-tailed and extremal risk measures, especially in the context of pension fund and insurance fixed cashflow liability profiles, but also those arising in derivatives books such as delta one books or options books in the presence of stochastic volatilities. In the extremal limit, we recover a new tail risk measure, Extreme Deviation (XD), an extremal risk measure significantly more sensitive to extremal returns than CVaR. Resulting optimal portfolios optimize the return per unit of XD, with portfolio weights consisting of a liability hedging contribution, and a risk contribution seeking to generate positive risk-adjusted return. The resulting allocations are analyzed qualitatively and quantitatively in a number of different limits.

Date: 2022-01, Revised 2023-04
New Economics Papers: this item is included in nep-fmk, nep-ias, nep-ore and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Risk June 2023

Downloads: (external link)
http://arxiv.org/pdf/2201.10846 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2201.10846

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().