Mean-Variance Asset Liability Management with State-Dependent Risk Aversion

2017 ◽  
Vol 21 (1) ◽  
pp. 87-106 ◽  
Author(s):  
Yan Zhang ◽  
Yonghong Wu ◽  
Shuang Li ◽  
Benchawan Wiwatanapataphee
Keyword(s):  
Risk Aversion ◽  
Asset Liability Management ◽  
Liability Management ◽  
State Dependent ◽  
Mean Variance

scholarly journals The Study of Mean-Variance Risky Asset Management with State-Dependent Risk Aversion under Regime Switching Market

2021 ◽  
Vol 2021 ◽  
pp. 1-15
Author(s):  
Shuang Li ◽  
Yu Yang ◽  
Yanli Zhou ◽  
Yonghong Wu ◽  
Xiangyu Ge
Keyword(s):  
Risk Aversion ◽  
Asset Management ◽  
Regime Switching ◽  
Asset Liability Management ◽  
Risky Assets ◽  
Liability Management ◽  
State Dependent ◽  
Optimal Value ◽  
Time Inconsistent ◽  
Mean Variance

How do investors require a distribution of the wealth among multiple risky assets while facing the risk of the uncontrollable payment for random liabilities? To cope with this problem, firstly, this paper explores the approach of asset-liability management under the state-dependent risk aversion with only risky assets, which has been considered under a continuous-time Markov regime-switching setting. Next, based on this realistic modelling, an extended Hamilton-Jacob-Bellman (HJB) system has been necessarily established for solving the optimization problem of asset-liability management. It has been derived closed-form analytical expressions applied in the time-inconsistent investment with optimal control theory to see that happens to the optimal value of the function. Ultimately, numerical examples presented with comparisons of the analytical results under different market conditions are exposed to analyse numerically the developed mean variance asset liability management strategy. We find that our proposed model can explain the financial phenomena more effectively and accurately.

Mean-variance equilibrium asset-liability management strategy with cointegrated assets

2021 ◽  
Vol 62 ◽  
pp. 209-234
Author(s):  
Mei Choi Chiu
Keyword(s):  
Financial Market ◽  
Time Consistency ◽  
Time Inconsistency ◽  
Asset Liability Management ◽  
Risky Assets ◽  
Liability Management ◽  
Equilibrium Control ◽  
Management Problems ◽  
Hamilton Jacobi Bellman ◽  
Mean Variance

This paper investigates asset-liability management problems in a continuous-time economy. When the financial market consists of cointegrated risky assets, institutional investors attempt to make profit from the cointegration feature on the one hand, while on the other hand they need to maintain a stable surplus level, that is, the company’s wealth less its liability. Challenges occur when the liability is random and cannot be fully financed or hedged through the financial market. For mean–variance investors, an additional concern is the rational time-consistency issue, which ensures that a decision made in the future will not be restricted by the current surplus level. By putting all these factors together, this paper derives a closed-form feedback equilibrium control for time-consistent mean–variance asset-liability management problems with cointegrated risky assets. The solution is built upon the Hamilton–Jacobi–Bellman framework addressing time inconsistency. doi: 10.1017/S1446181120000164

scholarly journals A Random Parameter Model for Continuous-Time Mean-Variance Asset-Liability Management

2015 ◽  
Vol 2015 ◽  
pp. 1-16 ◽  
Author(s):  
Hui-qiang Ma ◽  
Meng Wu ◽  
Nan-jing Huang
Keyword(s):  
Continuous Time ◽  
Efficient Frontier ◽  
Random Parameter ◽  
Management Problem ◽  
Random Parameters ◽  
Asset Liability Management ◽  
Linear Quadratic ◽  
Liability Management ◽  
The Mean ◽  
Mean Variance

We consider a continuous-time mean-variance asset-liability management problem in a market with random market parameters; that is, interest rate, appreciation rates, and volatility rates are considered to be stochastic processes. By using the theories of stochastic linear-quadratic (LQ) optimal control and backward stochastic differential equations (BSDEs), we tackle this problem and derive optimal investment strategies as well as the mean-variance efficient frontier analytically in terms of the solution of BSDEs. We find that the efficient frontier is still a parabola in a market with random parameters. Comparing with the existing results, we also find that the liability does not affect the feasibility of the mean-variance portfolio selection problem. However, in an incomplete market with random parameters, the liability can not be fully hedged.

scholarly journals Nash Equilibrium Strategy for a DC Pension Plan with State-Dependent Risk Aversion: A Multiperiod Mean-Variance Framework

2018 ◽  
Vol 2018 ◽  
pp. 1-17 ◽  
Author(s):  
Liyuan Wang ◽  
Zhiping Chen
Keyword(s):  
Risk Aversion ◽  
Pension Plan ◽  
Time Inconsistency ◽  
Equilibrium Strategy ◽  
Defined Contribution ◽  
Nash Equilibrium Strategy ◽  
State Dependent ◽  
Special Cases ◽  
Fractional Function ◽  
Mean Variance

This paper investigates a defined contribution (DC) pension plan investment problem during the accumulation phase under the multiperiod mean-variance criterion. Different from most studies in the literature, where the investor’s risk aversion attitude is state-independent, we choose a state-dependent risk aversion parameter, which is a fractional function of the current wealth level. Moreover, we incorporate the wage income factor into our model, which leads to a more complicated problem than the portfolio selection problems that appeared in relevant papers. Due to the time inconsistency of the resulting problem, we derive the explicit expressions for the equilibrium strategy and the corresponding equilibrium value function by adopting the game theoretic framework and using the extended Bellman equation. Further, two special cases are discussed. Finally, based on real data from the American market, some prominent features of the equilibrium strategy established in our theoretical derivations are provided by comparing them with the results in the existing literature.

scholarly journals Time Consistent Strategies for Mean-Variance Asset-Liability Management Problems

2013 ◽  
Vol 2013 ◽  
pp. 1-16 ◽  
Author(s):  
Hui-qiang Ma ◽  
Meng Wu ◽  
Nan-jing Huang
Keyword(s):  
Optimal Time ◽  
Investment Strategies ◽  
Asset Liability Management ◽  
Programming Technique ◽  
Liability Management ◽  
Management Problems ◽  
Time Diversification ◽  
Riskless Asset ◽  
Mean Variance ◽  
Variance Criterion

This paper studies the optimal time consistent investment strategies in multiperiod asset-liability management problems under mean-variance criterion. By applying time consistent model of Chen et al. (2013) and employing dynamic programming technique, we derive two-time consistent policies for asset-liability management problems in a market with and without a riskless asset, respectively. We show that the presence of liability does affect the optimal strategy. More specifically, liability leads a parallel shift of optimal time-consistent investment policy. Moreover, for an arbitrarily risk averse investor (under the variance criterion) with liability, the time-diversification effects could be ignored in a market with a riskless asset; however, it should be considered in a market without any riskless asset.

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