Dynamic Asset Allocation with Liabilities

European Financial Management, Forthcoming

67 Pages Posted: 3 May 2012 Last revised: 22 Nov 2016

See all articles by Daniel Giamouridis

Daniel Giamouridis

Qube Research & Technologies; Bayes Business School (formerly Cass), City, University of London

Athanasios Sakkas

Athens University of Economics and Business - Department of Accounting and Finance

Nikolaos Tessaromatis

EDHEC BUSINESS SCHOOL

Date Written: March 2016

Abstract

We develop an analytical solution to the dynamic multi-period portfolio choice problem of an investor with risky liabilities and time varying investment opportunities. We use the model to compare the asset allocation of investors who take liabilities into account, assuming time varying returns and a multi-period setting with the asset allocation of myopic ALM investors. In the absence of regulatory constraints on asset allocation weights, there are significant gains to investors who have access to a dynamic asset allocation model with liabilities. The gains are smaller under the typical funding ratio constraints faced by pension funds.

Keywords: Strategic Asset Allocation, Dynamic Asset Allocation, Asset–Liability Management

JEL Classification: G11, G12, G23

Suggested Citation

Giamouridis, Daniel and Sakkas, Athanasios and Tessaromatis, Nikolaos, Dynamic Asset Allocation with Liabilities (March 2016). European Financial Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2049950 or http://dx.doi.org/10.2139/ssrn.2049950

Daniel Giamouridis

Qube Research & Technologies ( email )

London
United Kingdom

Bayes Business School (formerly Cass), City, University of London ( email )

United Kingdom

Athanasios Sakkas (Contact Author)

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

Nikolaos Tessaromatis

EDHEC BUSINESS SCHOOL ( email )

10 fleet place
london, ec4m7rb
United Kingdom

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