Asset-Liability Management under time-varying Investment Opportunities

Robert Ferstl and Alex Weissensteiner

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, we propose multi-stage stochastic linear programming for asset-liability management under time-varying investment opportunities. We use a first-order unrestricted vector autoregressive process to model predictability in the asset returns and the state variables, where - additional to equity returns and dividend-price ratios - Nelson/Siegel parameters are included to account for the evolution of the yield curve. As objective function we minimize conditional value at risk of the shareholder value, i.e. the difference between the mark-to-market value of (financial) assets and the present value of future liabilities. Our results indicate strong hedging demands to mitigate interest rate risks.

Keywords: predictability; stochastic programming; scenario generation; VAR process (search for similar items in EconPapers)
JEL-codes: C61 G11 (search for similar items in EconPapers)
Date: 2009-05-05
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Citations: View citations in EconPapers (5)

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https://mpra.ub.uni-muenchen.de/15412/1/MPRA_paper_15412.pdf revised version (application/pdf)

Related works:
Journal Article: Asset-liability management under time-varying investment opportunities (2011)
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