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Asset-Liability Management under time-varying Investment Opportunities

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Author Info
Ferstl, Robert
Weissensteiner, Alex

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Abstract

In this paper, we propose multi-stage stochastic linear programming for asset-liability management under time-varying investment opportunities. We use a first-order unrestricted vector autoregressive process to model predictability in the asset returns and the state variables, where - additional to equity returns and dividend-price ratios - Nelson/Siegel parameters are included to account for the evolution of the yield curve. As objective function we minimize conditional value at risk of the shareholder value, i.e. the difference between the mark-to-market value of (financial) assets and the present value of future liabilities. Our results indicate strong hedging demands to mitigate interest rate risks.

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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15068.

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Date of creation: 05 May 2009
Date of revision: 25 May 2009
Handle: RePEc:pra:mprapa:15068

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Related research
Keywords: predictability; stochastic programming; scenario generation; VAR process;

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Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis

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