Asset-Liability Management Under the Safety-First Principle

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

23 Scopus Citations
View graph of relations

Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)455-478
Journal / PublicationJournal of Optimization Theory and Applications
Volume143
Issue number3
Online published23 May 2009
Publication statusPublished - Dec 2009
Externally publishedYes

Abstract

Under the safety-first principle (Roy in Econometrica 20:431-449, 1952), one investment goal in asset-liability (AL) management is to minimize an upper bound of the ruin probability which measures the likelihood of the final surplus being less than a given target level. We derive solutions to the safety-first AL management problem under both continuous-time and multiperiod-time settings via investigating the relationship between the safety-first AL management problem and the mean-variance AL management problem, and offer geometric interpretations. We classify investors under the safety-first principle as safety-first greedy and nongreedy investors and discuss corresponding optimal strategies for them.

Research Area(s)

  • Asset-liability management, Efficient frontier, Portfolio selection, Safety-first

Citation Format(s)

Asset-Liability Management Under the Safety-First Principle. / Chiu, M.C.; Li, D.
In: Journal of Optimization Theory and Applications, Vol. 143, No. 3, 12.2009, p. 455-478.

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review