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An Asset-Liability Investment System

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  • John M. Mulvey

    (School of Engineering and Applied Science, Princeton University, Princeton, New Jersey 08544)

Abstract

The Pacific Financial Asset Management Company uses stochastic optimization to allocate financial assets. The critical issue is to balance the risk and rewards of the strategic investment decisions in concert with the movements of the projected liabilities. Motivating this approach is the trend to managing risk in a more realistic and comprehensive fashion. The resulting nonlinear optimization system extends the asset-only model of Markowitz to handle liabilities. The aim of the integrative asset-liability system is the preservation of the firm's wealth as measured by assets minus the present value of their liabilities. While the integrative system requires greater information, its recommendations are more closely tailored to the investor's circumstances. The system has been implemented on an IBM PC so that the interactive features can be readily brought into the field.

Suggested Citation

  • John M. Mulvey, 1994. "An Asset-Liability Investment System," Interfaces, INFORMS, vol. 24(3), pages 22-33, June.
    • Handle: RePEc:inm:orinte:v:24:y:1994:i:3:p:22-33
    DOI: 10.1287/inte.24.3.22
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    Citations

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    Cited by:

    1. Donald L. Keefer & Craig W. Kirkwood & James L. Corner, 2004. "Perspective on Decision Analysis Applications, 1990–2001," Decision Analysis, INFORMS, vol. 1(1), pages 4-22, March.
    2. Luis Rios & Nikolaos Sahinidis, 2010. "Portfolio optimization for wealth-dependent risk preferences," Annals of Operations Research, Springer, vol. 177(1), pages 63-90, June.
    3. Mulvey, John M. & Rosenbaum, Daniel P. & Shetty, Bala, 1999. "Parameter estimation in stochastic scenario generation systems," European Journal of Operational Research, Elsevier, vol. 118(3), pages 563-577, November.
    4. Sebastiano Vitali & Vittorio Moriggia, 2021. "Pension fund management with investment certificates and stochastic dominance," Annals of Operations Research, Springer, vol. 299(1), pages 273-292, April.
    5. Brennan, Michael J. & Schwartz, Eduardo S. & Lagnado, Ronald, 1997. "Strategic asset allocation," Journal of Economic Dynamics and Control, Elsevier, vol. 21(8-9), pages 1377-1403, June.
    6. Maranas, C. D. & Androulakis, I. P. & Floudas, C. A. & Berger, A. J. & Mulvey, J. M., 1997. "Solving long-term financial planning problems via global optimization," Journal of Economic Dynamics and Control, Elsevier, vol. 21(8-9), pages 1405-1425, June.
    7. Moriggia, Vittorio & Kopa, Miloš & Vitali, Sebastiano, 2019. "Pension fund management with hedging derivatives, stochastic dominance and nodal contamination," Omega, Elsevier, vol. 87(C), pages 127-141.

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