Author(s): WU Wei-ping, GAO Jian-jun, LI Duan, Department of Automation.Shanghai Jiaotong University, Department of Systems Engineering and Engineering Management, The Chinese University of Hong Kong
Pages: 1200-1207
Year: 2015 Issue:  9
Journal: Control Theory & Applications
Keyword:  multiperiod portfolio optimization; stochastic control systems; asset-liability management; mean-field formulation; finance applications;
Abstract: The objective of asset and liability management(ALM) is to seek an optimal portfolio policy such that a risk measure(variance of the surplus) is minimized while achieving a certain threshold level for the expected value of the surplus.This paper studies two multiperiod mean-variance-based ALM models including the one with intertemporal risk control and the other one with no bankruptcy restriction.Due to the nonseparability of the variance,it is hard to solve this problem by stochastic control approach directly.Instead of adopting the widely used embedding method which may encounter computational difficulty in solving these problems,we develop a novel stochastic control approach of a mean-field type.Under a general market assumption,the analytical portfolio policies and mean-variance efficient frontiers are derived for these two ALM problems.The new result developed in this paper provides investors with efficient ways in characterizing their optimal portfolio and liability management strategies for these sophisticated mean-variance-based ALM models.