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Optimal Multiperiod Asset Allocation: Matching Assets to Liabilities in a Discrete Model
Author(s) -
Huang HongChih
Publication year - 2010
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/j.1539-6975.2009.01350.x
Subject(s) - asset allocation , stochastic investment model , asset (computer security) , matching (statistics) , economics , investment (military) , variance (accounting) , payment , liability , point (geometry) , actuarial science , financial market , econometrics , term (time) , microeconomics , finance , computer science , mathematics , portfolio , statistics , geometry , computer security , accounting , politics , political science , law , physics , quantum mechanics
Investment and risk control are becoming increasingly important for financial institutions. Asset allocation provides a fundamental investing principle to manage the risk and return trade‐off in financial markets. This article proposes a general formulation of a first approximation of multiperiod asset allocation modeling for institutions that invest to meet the target payment structures of a long‐term liability. By addressing the shortcomings of both single‐period models and the single‐point forecast of the mean variance approach, this article derives explicit formulae for optimal asset allocations, taking into account possible future realizations in a multiperiod discrete time model.