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Benchmarking asset allocation strategies in the presence of liability constraints

Author

Listed:
  • Areski Cousin

    (LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)

  • Ying Jiao

    (LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)

  • Christian Y Robert

    (LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)

  • Olivier David

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - GENES - Groupe des Écoles Nationales d'Économie et Statistique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - GENES - Groupe des Écoles Nationales d'Économie et Statistique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique, ENSAE - Ecole Nationale de la Statistique et de l'Analyse Economique - Ecole Nationale de la Statistique et de l'Analyse Economique, IP Paris - Institut Polytechnique de Paris)

Abstract

Portfolio managers are in general evaluated relative to a benchmark and adapt their allocation strategies to account for the benchmark performance. A major issue for portfolio managers of liability driven institutions is that no benchmark is given to them, although they face midterm objectives with short term constraints. No performance attribution methodology may then be used to serve as a reference. Assessing the performance of the asset manager as an agent, represents a major stake for the institution as a principal delegating a mandate of asset management. We propose an optimal asset allocation approach taking into account liability constraints to build a benchmark. This benchmark will be used to compare the ex-post effective performance of the asset manager to the effective performance of the ex-ante optimal dynamic asset allocation.

Suggested Citation

  • Areski Cousin & Ying Jiao & Christian Y Robert & Olivier David, 2016. "Benchmarking asset allocation strategies in the presence of liability constraints," Post-Print hal-05415073, HAL.
    • Handle: RePEc:hal:journl:hal-05415073
    DOI: 10.1016/j.insmatheco.2016.06.020
    Note: View the original document on HAL open archive server: https://hal.science/hal-05415073v1
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