Liability valuation and optimal asset allocation

Joachim Inkmann () and David Blake

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Current approaches to asset-liability management employ a sequence of distinct procedures to value liabilities and determine the asset allocation. First, a discount rate that is usually dic-tated by accounting standards is used to value liabilities. Second, the asset allocation is determined by maximizing some objective function in the surplus of assets over liabilities, taken as given the valuation of liabilities. We introduce a model that allows for the joint valuation of liabilities and the determination of the optimal asset allocation using discount rates that ap-propriately reflect default risk. We focus on the case of a defined benefit pension plan.

Keywords: asset-liability management; liability valuation; asset allocation; Aurplus; default; discount rate (search for similar items in EconPapers)
JEL-codes: G11 G23 G28 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2004-08-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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