Optimal Asset Allocation Subject to Withdrawal Risk and Solvency Constraints

Areski Cousin, Ying Jiao (), Christian Yann Robert and Olivier Zerbib
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Ying Jiao: LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon, ISFA - Institut de Science Financière et d'Assurances

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Abstract: This paper investigates the optimal asset allocation of a financial institution whose customers are free to withdraw their capital-guaranteed financial contracts at any time. In accounting for the asset-liability mismatch risk of the institution, we present a general utility optimization problem in a discrete-time setting and provide a dynamic programming principle for the optimal investment strategies. Furthermore, we consider an explicit context, including liquidity risk, interest rate, and credit intensity fluctuations, and show by numerical results that the optimal strategy improves both the solvency and asset returns of the institution compared to a standard institutional investor's asset allocation.

Date: 2022-01-06
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Published in Risks, 2022, 10 (1), pp.15. ⟨10.3390/risks10010015⟩

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Journal Article: Optimal Asset Allocation Subject to Withdrawal Risk and Solvency Constraints (2022)
Working Paper: Optimal asset allocation subject to withdrawal risk and solvency constraints (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04894071

DOI: 10.3390/risks10010015

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