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MEAN–VARIANCE EQUILIBRIUM ASSET-LIABILITY MANAGEMENT STRATEGY WITH COINTEGRATED ASSETS
- Source :
- The ANZIAM Journal. 62:209-234
- Publication Year :
- 2020
- Publisher :
- Cambridge University Press (CUP), 2020.
-
Abstract
- This paper investigates asset-liability management problems in a continuous-time economy. When the financial market consists of cointegrated risky assets, institutional investors attempt to make profit from the cointegration feature on the one hand, while on the other hand they need to maintain a stable surplus level, that is, the company’s wealth less its liability. Challenges occur when the liability is random and cannot be fully financed or hedged through the financial market. For mean–variance investors, an additional concern is the rational time-consistency issue, which ensures that a decision made in the future will not be restricted by the current surplus level. By putting all these factors together, this paper derives a closed-form feedback equilibrium control for time-consistent mean–variance asset-liability management problems with cointegrated risky assets. The solution is built upon the Hamilton–Jacobi–Bellman framework addressing time inconsistency.
- Subjects :
- 050208 finance
Cointegration
05 social sciences
Institutional investor
Liability
Financial market
01 natural sciences
Profit (economics)
Microeconomics
010104 statistics & probability
Management strategy
Mathematics (miscellaneous)
0502 economics and business
Economics
Mean variance
Dynamic inconsistency
0101 mathematics
Subjects
Details
- ISSN :
- 14468735 and 14461811
- Volume :
- 62
- Database :
- OpenAIRE
- Journal :
- The ANZIAM Journal
- Accession number :
- edsair.doi...........efd93113b211b835894afa7b5e271128