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Continuous-Time Reinforcement Learning for Asset-Liability Management

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  • Yilie Huang

Abstract

This paper proposes a novel approach for Asset-Liability Management (ALM) by employing continuous-time Reinforcement Learning (RL) with a linear-quadratic (LQ) formulation that incorporates both interim and terminal objectives. We develop a model-free, policy gradient-based soft actor-critic algorithm tailored to ALM for dynamically synchronizing assets and liabilities. To ensure an effective balance between exploration and exploitation with minimal tuning, we introduce adaptive exploration for the actor and scheduled exploration for the critic. Our empirical study evaluates this approach against two enhanced traditional financial strategies, a model-based continuous-time RL method, and three state-of-the-art RL algorithms. Evaluated across 200 randomized market scenarios, our method achieves higher average rewards than all alternative strategies, with rapid initial gains and sustained superior performance. The outperformance stems not from complex neural networks or improved parameter estimation, but from directly learning the optimal ALM strategy without learning the environment.

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  • Yilie Huang, 2025. "Continuous-Time Reinforcement Learning for Asset-Liability Management," Papers 2509.23280, arXiv.org.
  • Handle: RePEc:arx:papers:2509.23280
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    References listed on IDEAS

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    1. Yanwei Jia & Xun Yu Zhou, 2021. "Policy Gradient and Actor-Critic Learning in Continuous Time and Space: Theory and Algorithms," Papers 2111.11232, arXiv.org, revised Jul 2022.
    2. Black, Fischer & Perold, AndreF., 1992. "Theory of constant proportion portfolio insurance," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 403-426.
    3. Yanwei Jia & Xun Yu Zhou, 2021. "Policy Evaluation and Temporal-Difference Learning in Continuous Time and Space: A Martingale Approach," Papers 2108.06655, arXiv.org, revised Feb 2022.
    4. Chanjuan Li & Zhongfei Li & Ke Fu & Haiqing Song, 2013. "Time-consistent Optimal Portfolio Strategy for Asset-liability Management under Mean-variance Criterion," Accounting and Finance Research, Sciedu Press, vol. 2(2), pages 1-89, May.
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