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Optimal asset allocation subject to withdrawal risk and solvency constraints

Author

Listed:
  • Areski Cousin

    (IRMA - Institut de Recherche Mathématique Avancée - UNISTRA - Université de Strasbourg - CNRS - Centre National de la Recherche Scientifique)

  • Ying Jiao

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

  • Christian y Robert

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique)

  • Olivier David Zerbib

Abstract

This paper investigates the optimal asset allocation of a financial institution whose customers are free to withdraw their capital-guaranteed financial contracts at any time. Accounting for asset-liability mismatch risk of the institution, we present a general utility optimization problem in discrete time setting and provide a dynamic programming principle for the optimal investment strategies. Furthermore, we consider an explicit context, including liquidity risk, interest rate and credit intensity fluctuations, and show, by numerical results, that the optimal strategy improves the solvency and the asset returns of the institution compared to the baseline asset allocation.

Suggested Citation

  • Areski Cousin & Ying Jiao & Christian y Robert & Olivier David Zerbib, 2021. "Optimal asset allocation subject to withdrawal risk and solvency constraints," Working Papers hal-03244380, HAL.
    • Handle: RePEc:hal:wpaper:hal-03244380
    Note: View the original document on HAL open archive server: https://hal.science/hal-03244380
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    References listed on IDEAS

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    More about this item

    Keywords

    Asset allocation; asset-liability management; withdrawal risk; liquidity risk; utility maximization;
    All these keywords.

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