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 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

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

MEAN–VARIANCE EQUILIBRIUM ASSET-LIABILITY MANAGEMENT STRATEGY WITH COINTEGRATED ASSETS

2020 ◽  
Vol 62 (2) ◽  
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

AbstractThis 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.

scholarly journals Continuous-Time Mean-Variance Asset-Liability Management with Hidden Markovian Regime Switching

2014 ◽  
Vol 2014 ◽  
pp. 1-9 ◽  
Author(s):  
Ling Zhang
Keyword(s):  
Brownian Motion ◽  
Continuous Time ◽  
Regime Switching ◽  
Management Problem ◽  
Asset Liability Management ◽  
Liability Management ◽  
The Mean ◽  
Markovian Regime Switching ◽  
Mean Variance ◽  
Markovian Regime

This paper considers a continuous-time mean-variance asset-liability management problem with incompletely observable information. An investor can only observe the prices of the asset and liability and the dynamics of the unobservable states of the underlying financial market is described by a hidden Markovian chain. The price of the risky asset is assumed to be governed by a hidden Markovian regime switching geometric Brownian motion and the liability is assumed to follow a hidden Markovian regime switching Brownian motion with drift, respectively. The appreciation rates of the risky asset and the liability are modulated by the hidden Markovian chain. By using the separation principle, the filtering-estimation problem and the mean-variance asset-liability management problem are discussed. The explicit expressions for the optimal asset-liability management strategy and the mean-variance efficient frontier are determined by using the stochastic maximum principle.

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