Asset-Liability Management Under Time-Varying Investment Opportunities

33 Pages Posted: 8 May 2009 Last revised: 1 Jul 2017

See all articles by Robert Ferstl

Robert Ferstl

Oesterreichische Nationalbank (OeNB)

Alex Weissensteiner

Free University of Bolzano Bozen

Date Written: 2010

Abstract

Stochastic linear programming is a suitable numerical approach for solving practical asset-liability management problems. In this paper, we consider a multi-stage setting under time-varying investment opportunities and propose a decomposition of the benefits in dynamic re-allocation and predictability effects. A first-order unrestricted vector autoregressive process is used to model asset returns and state variables where, in addition to equity returns and dividend-price ratios, Nelson/Siegel parameters are included to account for the evolution of the yield curve. The objective is to minimize the Conditional Value at Risk of shareholder value, i.e., the difference between the mark-to-market value of (financial) assets and the present value of future liabilities.

Keywords: asset-liability management, predictability, stochastic programming, scenario generation, VAR process

JEL Classification: C61, G11

Suggested Citation

Ferstl, Robert and Weissensteiner, Alex, Asset-Liability Management Under Time-Varying Investment Opportunities (2010). Journal of Banking and Finance, 2011, 35(1), 182-192. Available at SSRN: https://ssrn.com/abstract=1399609

Robert Ferstl (Contact Author)

Oesterreichische Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3, PO Box 61
Vienna,
1010 Vienna, A-1011
Austria

Alex Weissensteiner

Free University of Bolzano Bozen ( email )

Universitätsplatz 1
Bolzano, 39100
+39 0471 013496 (Phone)

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