Benchmarking asset allocation strategies in the presence of liability constraints

Areski Cousin, Ying Jiao (), Christian Robert and Olivier David
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Areski Cousin: LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon
Ying Jiao: LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon
Christian Robert: LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon
Olivier David: CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - Groupe ENSAE-ENSAI - Groupe des Écoles Nationales d'Économie et Statistique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - Groupe ENSAE-ENSAI - Groupe des Écoles Nationales d'Économie et Statistique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique, ENSAE - Ecole Nationale de la Statistique et de l'Analyse Economique - Ecole Nationale de la Statistique et de l'Analyse Economique, IP Paris - Institut Polytechnique de Paris

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Abstract: Portfolio managers are in general evaluated relative to a benchmark and adapt their allocation strategies to account for the benchmark performance. A major issue for portfolio managers of liability driven institutions is that no benchmark is given to them, although they face midterm objectives with short term constraints. No performance attribution methodology may then be used to serve as a reference. Assessing the performance of the asset manager as an agent, represents a major stake for the institution as a principal delegating a mandate of asset management. We propose an optimal asset allocation approach taking into account liability constraints to build a benchmark. This benchmark will be used to compare the ex-post effective performance of the asset manager to the effective performance of the ex-ante optimal dynamic asset allocation.

Date: 2016-07-11
Note: View the original document on HAL open archive server: https://hal.science/hal-05415073v1
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Published in Insurance: Mathematics and Economics, 2016, 70, pp.327-338. ⟨10.1016/j.insmatheco.2016.06.020⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05415073

DOI: 10.1016/j.insmatheco.2016.06.020

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