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An Application of Chance Constrained Programming to Portfolio Selection in a Casualty Insurance Firm

Author

Listed:
  • N. H. Agnew

    (System Development Corporation, Dayton, Ohio)

  • R. A. Agnew

    (Air Force Institute of Technology, WPAFB, Ohio)

  • J. Rasmussen

    (Wesleyan University, Connecticut)

  • K. R. Smith

    (University of Wisconsin)

Abstract

The problem of portfolio selection is discussed with special emphasis on the casualty insurance firm. A single period optimisation model is developed in which expected return is maximized subject to a chance constraint requiring return to be greater than some lower bound with a stipulated probability. It is demonstrated that this approach provides an operational means of selecting a Baumol efficient portfolio. Additional chance constraints are used to maintain the firm's liquidity. The evaluation of optimal portfolios is discussed and the evaluators for the portfolio model are developed. Finally, an example is provided.

Suggested Citation

  • N. H. Agnew & R. A. Agnew & J. Rasmussen & K. R. Smith, 1969. "An Application of Chance Constrained Programming to Portfolio Selection in a Casualty Insurance Firm," Management Science, INFORMS, vol. 15(10), pages 512-520, June.
    • Handle: RePEc:inm:ormnsc:v:15:y:1969:i:10:p:b512-b520
    DOI: 10.1287/mnsc.15.10.B512
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    Cited by:

    1. Li, S. X., 1995. "An insurance and investment portfolio model using chance constrained programming," Omega, Elsevier, vol. 23(5), pages 577-585, October.
    2. Ümit Sakallı & Ömer Baykoç & Burak Birgören, 2011. "Stochastic optimization for blending problem in brass casting industry," Annals of Operations Research, Springer, vol. 186(1), pages 141-157, June.
    3. Bismark Singh & Bernard Knueven, 2021. "Lagrangian relaxation based heuristics for a chance-constrained optimization model of a hybrid solar-battery storage system," Journal of Global Optimization, Springer, vol. 80(4), pages 965-989, August.
    4. D. K. Mohanty & Avik Pradhan & M. P. Biswal, 2020. "Chance constrained programming with some non-normal continuous random variables," OPSEARCH, Springer;Operational Research Society of India, vol. 57(4), pages 1281-1298, December.
    5. Dillon, John L., 1971. "An Expository Review of Bernoullian Decision Theory in Agriculture: Is Utility Futility?," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 39(01), pages 1-78, March.
    6. Li, Susan X. & Huang, Zhimin, 1996. "Determination of the portfolio selection for a property-liability insurance company," European Journal of Operational Research, Elsevier, vol. 88(2), pages 257-268, January.

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