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- Title
Optimal Asset Allocation Subject to Withdrawal Risk and Solvency Constraints.
- Authors
Cousin, Areski; Jiao, Ying; Robert, Christian Yann; Zerbib, Olivier David
- Abstract
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.
- Subjects
ASSET allocation; INTEREST rates; INSTITUTIONAL investors; DYNAMIC programming; FINANCIAL institutions
- Publication
Risks, 2022, Vol 10, Issue 1, p15
- ISSN
2227-9091
- Publication type
Article
- DOI
10.3390/risks10010015