scholarly journals Optimal Asset Allocation Subject to Withdrawal Risk and Solvency Constraints

Risks ◽  
2022 ◽  
Vol 10 (1) ◽  
pp. 15
Author(s):  
Areski Cousin ◽  
Ying Jiao ◽  
Christian Yann Robert ◽  
Olivier David Zerbib
Keyword(s):  
Asset Allocation ◽  
Optimization Problem ◽  
Financial Institution ◽  
Asset Returns ◽  
Optimal Investment ◽  
Dynamic Programming Principle ◽  
Investment Strategies ◽  
Financial Contracts ◽  
General Utility ◽  
Utility Optimization

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.

scholarly journals Multi-period Investment Strategies with Transaction Costs Under Cumulative Prospect Theory

2019 ◽  
Vol 5 (2) ◽  
pp. 53
Author(s):  
Liurui Deng ◽  
Lan Yang ◽  
Bolin Ma
Keyword(s):  
Transaction Costs ◽  
Prospect Theory ◽  
Optimization Problem ◽  
Optimal Investment ◽  
Original Data ◽  
Cumulative Prospect Theory ◽  
Optimal Portfolio ◽  
Investment Strategies ◽  
Optimal Portfolios ◽  
The Impact

This paper focuses on optimal investment strategies under cumulative prospect theory (CPT). Considering transaction costs, we investigate CPT investors multi-period optimal portfolios. Our main contributions relative to previous work are expanding a single-period optimization problem to a multi-period optimization problem and investigating the impact of transaction costs on optimal portfolio selections. In a numerical analysis that applied original data on four stocks from the NASDAQ, we examine the effects of different risks on the optimal portfolio. Moreover, in contrast with the results without transaction costs, we come to conclusion that the optimal strategy with transaction costs is less sensitive to risk.

A Dynamic Investment Model with Profit-Sharing in an Interest-Free Economy

1991 ◽  
Vol 8 (1) ◽  
pp. 109-127
Author(s):  
Zaidi Sattar
Keyword(s):  
Optimal Investment ◽  
Integrated Approach ◽  
Building Blocks ◽  
Profit Sharing ◽  
Comparative Statics ◽  
Investment Model ◽  
Financial Contracts ◽  
Endogenous Variables ◽  
Rate Of Profit ◽  
Component Models

The present paper is a contribution to the building blocks of an investmentmodel within the framework of an integrated macroeconomic model of anIslamic economy. Investment behavior in the model is guided by an Islamicethicalvalue system and profit-sharing financial contracts. The typical firm’sinvestment decision is believed to emerge from a dynamic inter-temporalmaximization exercise within an infinite time horizon. The method of Calculusof Variations is applied to arrive at the optimal investment and employmentcriteria for the firm. The result is then incorporated into a macroeconomicmodel to study the behavior of key endogenous variables like national incomeand the rate of profit-share. Comparative statics exercised within a generalequilibrium framework reveal the potency of monetary policy but the neutralityof fiscal policy with respect to output and employment.IntroductionThe past decade has witnessed a tremendous outpouring of interest aswell as effort in the formalization of economic models based on profit-sharingfinancial arrangements as an Islamic alternative to the conventional interestbasedeconomic system. Several macroeconomic models for interest-freeeconomies have been proposed (Anwar 1987; Habibi 1987; Metwally 1981& 1983). The rigor of an integrated approach to such macroeconomic modelhgdepends on the rigor of the component models, namely, the consumption,investment, monetary, and fiscal relationships. Economists have writtenextensively on different aspects of consumer behavior in Islamic societies.Kahf (1978) and Khan (1984), among others, have contributed to the conceptualand analytical formulation of the consumption function under ...

scholarly journals OPTIMAL CONTROL OF THE DECUMULATION OF A RETIREMENT PORTFOLIO WITH VARIABLE SPENDING AND DYNAMIC ASSET ALLOCATION

2021 ◽  
pp. 1-34
Author(s):  
Peter A. Forsyth ◽  
Kenneth R. Vetzal ◽  
Graham Westmacott
Keyword(s):  
Asset Allocation ◽  
Asset Returns ◽  
Retirement Savings ◽  
Allocation Strategy ◽  
Investment Portfolio ◽  
Dynamic Asset Allocation ◽  
Dynamic Strategy ◽  
Prior Literature ◽  
Weighted Combination ◽  
Over Time

Abstract We extend the Annually Recalculated Virtual Annuity (ARVA) spending rule for retirement savings decumulation (Waring and Siegel (2015) Financial Analysts Journal, 71(1), 91–107) to include a cap and a floor on withdrawals. With a minimum withdrawal constraint, the ARVA strategy runs the risk of depleting the investment portfolio. We determine the dynamic asset allocation strategy which maximizes a weighted combination of expected total withdrawals (EW) and expected shortfall (ES), defined as the average of the worst 5% of the outcomes of real terminal wealth. We compare the performance of our dynamic strategy to simpler alternatives which maintain constant asset allocation weights over time accompanied by either our same modified ARVA spending rule or withdrawals that are constant over time in real terms. Tests are carried out using both a parametric model of historical asset returns as well as bootstrap resampling of historical data. Consistent with previous literature that has used different measures of reward and risk than EW and ES, we find that allowing some variability in withdrawals leads to large improvements in efficiency. However, unlike the prior literature, we also demonstrate that further significant enhancements are possible through incorporating a dynamic asset allocation strategy rather than simply keeping asset allocation weights constant throughout retirement.

Optimal investment strategies for light duty vehicle and electricity generation sectors in a carbon constrained world

2016 ◽  
Vol 255 (1-2) ◽  
pp. 391-420 ◽  
Author(s):  
Boxiao Chen ◽  
Erica Klampfl ◽  
Margaret Strumolo ◽  
Yan Fu ◽  
Xiuli Chao ◽  
...  
Keyword(s):  
Electricity Generation ◽  
Optimal Investment ◽  
Investment Strategies ◽  
Light Duty ◽  
Light Duty Vehicle

scholarly journals Abnormal Portfolio Asset Allocation Model: Review

2020 ◽  
Vol 1 (1) ◽  
pp. 46-54
Author(s):  
Nurfadhlina Bt Abdul Halima ◽  
Dwi Susanti ◽  
Alit Kartiwa ◽  
Endang Soeryana Hasbullah
Keyword(s):  
Asset Allocation ◽  
Asset Returns ◽  
Higher Moments ◽  
Investment Portfolio ◽  
Allocation Model ◽  
Model Review ◽  
The Mean ◽  
Mean Variance ◽  
Skewness And Kurtosis ◽  
Normally Distributed

It has been widely studied how investors will allocate their assets to an investment when the return of assets is normally distributed. In this context usually, the problem of portfolio optimization is analyzed using mean-variance. When asset returns are not normally distributed, the mean-variance analysis may not be appropriate for selecting the optimum portfolio. This paper will examine the consequences of abnormalities in the process of allocating investment portfolio assets. Here will be shown how to adjust the mean-variance standard as a basic framework for asset allocation in cases where asset returns are not normally distributed. We will also discuss the application of the optimum strategies for this problem. Based on the results of literature studies, it can be concluded that the expected utility approximation involves averages, variances, skewness, and kurtosis, and can be extended to even higher moments.

An examination of HMM-based investment strategies for asset allocation

2009 ◽  
Vol 27 (3) ◽  
pp. 204-221 ◽  
Author(s):  
Christina Erlwein ◽  
Rogemar Mamon ◽  
Matt Davison
Keyword(s):  
Asset Allocation ◽  
Investment Strategies

Optimal Fisheries Investment under Uncertainty

1983 ◽  
Vol 40 (12) ◽  
pp. 2080-2091 ◽  
Author(s):  
Anthony T. Charles
Keyword(s):  
Optimal Investment ◽  
Fish Stock ◽  
Investment Strategies ◽  
Economic Optimization ◽  
Stock Management ◽  
Investment Under Uncertainty ◽  
Capital Costs ◽  
Wide Range ◽  
Full Analysis ◽  
Fishing Fleets

A full analysis of optimal fisheries investment strategies must take into account high levels of uncertainty in future fishery returns, as well as irreversibility of investment in specialized, nonmalleable fishing fleets. A stochastic optimization model is analyzed using dynamic programming to determine optimal policy functions for both fleet investment and fish stock management within an uncertain environment. The resulting policies are qualitatively similar to those found in the corresponding deterministic case, but quantitative differences can be substantial. Simulation results show that optimal fleet capacity should be expected to fluctuate over a fairly wide range, induced by stochastic variations in the biomass. However, the performance of a linear-cost risk-neutral fishery is fairly insensitive to variations in investment and escapement policies around their optimum levels, so that economic optimization is "forgiving" within this context. A framework of balancing upside and downside investment risks is used here to explain the roles of several fishery parameters in relation to optimal investment under uncertainty. In particular, the intrinsic growth rate of the resource and the ratio of unit capital costs to unit operating costs are found to be key parameters in determining whether investment should be higher or lower under uncertainty.

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