Hedging under multiple risk constraints
Motivated by the asset-liability management of a nuclear power plant operator, we consider the problem of finding the least expensive portfolio, which outperforms a given set of stochastic benchmarks. For a specified loss function, the expected shortfall with respect to each of the benchmarks weighted by this loss function must remain bounded by a given threshold. We consider different alternative formulations of this problem in a complete market setting, establish the relationship between these formulations, present a general resolution methodology via dynamic programming in a non-Markovian context and give explicit solutions in special cases.
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- Martellini, Lionel & Milhau, Vincent, 2012. "Dynamic allocation decisions in the presence of funding ratio constraints," Journal of Pension Economics and Finance, Cambridge University Press, vol. 11(04), pages 549-580, October.
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