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Optimal asset allocation for a general portfolio of life insurance policies

Listed author(s):
  • Huang, Hong-Chih
  • Lee, Yung-Tsung
Registered author(s):

    Asset liability matching remains an important topic in life insurance research. The objective of this paper is to find an optimal asset allocation for a general portfolio of life insurance policies. Using a multi-asset model to investigate the optimal asset allocation of life insurance reserves, this study obtains formulae for the first two moments of the accumulated asset value. These formulae enable the analysis of portfolio problems and a first approximation of optimal investment strategies. This research provides a new perspective for solving both single-period and multiperiod asset allocation problems in application to life insurance policies. The authors obtain an efficient frontier in the case of single-period method; for the multiperiod method, the optimal asset allocation strategies can differ considerably for different portfolio structures.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0167-6687(09)00133-4
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    Article provided by Elsevier in its journal Insurance: Mathematics and Economics.

    Volume (Year): 46 (2010)
    Issue (Month): 2 (April)
    Pages: 271-280

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    Handle: RePEc:eee:insuma:v:46:y:2010:i:2:p:271-280
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505554

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    1. Wang, Zengwu & Xia, Jianming & Zhang, Lihong, 2007. "Optimal investment for an insurer: The martingale approach," Insurance: Mathematics and Economics, Elsevier, vol. 40(2), pages 322-334, March.
    2. Michael Sherris, 2006. "Solvency, Capital Allocation, and Fair Rate of Return in Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 73(1), pages 71-96.
    3. Huang, Hong-Chih & Cairns, Andrew J.G., 2006. "On the control of defined-benefit pension plans," Insurance: Mathematics and Economics, Elsevier, vol. 38(1), pages 113-131, February.
    4. Emms, P. & Haberman, S., 2007. "Asymptotic and numerical analysis of the optimal investment strategy for an insurer," Insurance: Mathematics and Economics, Elsevier, vol. 40(1), pages 113-134, January.
    5. Marceau, Etienne & Gaillardetz, Patrice, 1999. "On life insurance reserves in a stochastic mortality and interest rates environment," Insurance: Mathematics and Economics, Elsevier, vol. 25(3), pages 261-280, December.
    6. Hurlimann, Werner, 2002. "On the accumulated aggregate surplus of a life portfolio," Insurance: Mathematics and Economics, Elsevier, vol. 30(1), pages 27-35, February.
    7. Campbell, John Y. & Viceira, Luis M., 2002. "Strategic Asset Allocation: Portfolio Choice for Long-Term Investors," OUP Catalogue, Oxford University Press, number 9780198296942.
    8. Dhaene, Jan, 1989. "Stochastic Interest Rates and Autoregressive Integrated Moving Average Processes," ASTIN Bulletin: The Journal of the International Actuarial Association, Cambridge University Press, vol. 19(S1), pages 43-50, November.
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