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A robust optimization approach to asset-liability management under time-varying investment opportunities

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  • Gülpinar, Nalan
  • Pachamanova, Dessislava

Abstract

This paper presents an asset liability management model based on robust optimization techniques. The model explicitly takes into consideration the time-varying aspect of investment opportunities. The emphasis of the proposed approach is on computational tractability and practical appeal. Computational studies with real market data study the performance of robust-optimization-based strategies, and compare it to the performance of the classical stochastic programming approach.

Suggested Citation

  • Gülpinar, Nalan & Pachamanova, Dessislava, 2013. "A robust optimization approach to asset-liability management under time-varying investment opportunities," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 2031-2041.
    • Handle: RePEc:eee:jbfina:v:37:y:2013:i:6:p:2031-2041
    DOI: 10.1016/j.jbankfin.2013.01.025
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    Cited by:

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    2. Dimitris Andriosopoulos & Michalis Doumpos & Panos M. Pardalos & Constantin Zopounidis, 2019. "Computational approaches and data analytics in financial services: A literature review," Journal of the Operational Research Society, Taylor & Francis Journals, vol. 70(10), pages 1581-1599, October.
    3. Panos Xidonas & Ralph Steuer & Christis Hassapis, 2020. "Robust portfolio optimization: a categorized bibliographic review," Annals of Operations Research, Springer, vol. 292(1), pages 533-552, September.
    4. Philipp J. Kremer & Andreea Talmaciu & Sandra Paterlini, 2018. "Risk minimization in multi-factor portfolios: What is the best strategy?," Annals of Operations Research, Springer, vol. 266(1), pages 255-291, July.
    5. Davide Lauria & Giorgio Consigli & Francesca Maggioni, 2022. "Optimal chance-constrained pension fund management through dynamic stochastic control," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 44(3), pages 967-1007, September.
    6. Jang Ho Kim & Woo Chang Kim & Frank J. Fabozzi, 2018. "Recent advancements in robust optimization for investment management," Annals of Operations Research, Springer, vol. 266(1), pages 183-198, July.
    7. Duarte, Thiago B. & Valladão, Davi M. & Veiga, Álvaro, 2017. "Asset liability management for open pension schemes using multistage stochastic programming under Solvency-II-based regulatory constraints," Insurance: Mathematics and Economics, Elsevier, vol. 77(C), pages 177-188.
    8. Alireza Ghahtarani & Ahmed Saif & Alireza Ghasemi, 2022. "Robust portfolio selection problems: a comprehensive review," Operational Research, Springer, vol. 22(4), pages 3203-3264, September.
    9. Grzegorz Halaj & Sofia Priazhkina, 2021. "Stressed but not Helpless: Strategic Behaviour of Banks Under Adverse Market Conditions," Staff Working Papers 21-35, Bank of Canada.
    10. Doumpos, Michalis & Zopounidis, Constantin & Gounopoulos, Dimitrios & Platanakis, Emmanouil & Zhang, Wenke, 2023. "Operational research and artificial intelligence methods in banking," European Journal of Operational Research, Elsevier, vol. 306(1), pages 1-16.
    11. Ling, Aifan & Sun, Jie & Wang, Meihua, 2020. "Robust multi-period portfolio selection based on downside risk with asymmetrically distributed uncertainty set," European Journal of Operational Research, Elsevier, vol. 285(1), pages 81-95.
    12. Abdymomunov, Azamat & Gerlach, Jeffrey, 2014. "Stress testing interest rate risk exposure," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 287-301.
    13. Vicente, L.A.B.G. & Cerezetti, F.V. & De Faria, S.R. & Iwashita, T. & Pereira, O.R., 2015. "Managing risk in multi-asset class, multimarket central counterparties: The CORE approach," Journal of Banking & Finance, Elsevier, vol. 51(C), pages 119-130.
    14. Platanakis, Emmanouil & Sutcliffe, Charles, 2016. "Pension scheme redesign and wealth redistribution between the members and sponsor: The USS rule change in October 2011," Insurance: Mathematics and Economics, Elsevier, vol. 69(C), pages 14-28.
    15. Nalan Gülpınar & Dessislava Pachamanova & Ethem Çanakoğlu, 2016. "A robust asset–liability management framework for investment products with guarantees," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 38(4), pages 1007-1041, October.
    16. Grzegorz Hałaj, 2016. "Dynamic Balance Sheet Model With Liquidity Risk," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 19(07), pages 1-37, November.
    17. Pejman Peykani & Mostafa Sargolzaei & Mohammad Hashem Botshekan & Camelia Oprean-Stan & Amir Takaloo, 2023. "Optimization of Asset and Liability Management of Banks with Minimum Possible Changes," Mathematics, MDPI, vol. 11(12), pages 1-24, June.
    18. Alireza Ghahtarani & Ahmed Saif & Alireza Ghasemi, 2021. "Robust Portfolio Selection Problems: A Comprehensive Review," Papers 2103.13806, arXiv.org, revised Jan 2022.

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    More about this item

    Keywords

    Robust optimization; Asset-liability management; Computational tractability;
    All these keywords.

    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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