The optimal asset and liability portfolio for a financial institution with multiple lines of businesses

Yaniv Zaks

doi:10.1007/s13385-013-0067-7

The optimal asset and liability portfolio for a financial institution with multiple lines of businesses

Yaniv Zaks

Research output: Contribution to journal › Article › peer-review

3 Scopus citations

Abstract

In this paper we present an optimization framework to deal with the asset-liability portfolio selection problem. We consider a financial institution that has multiple lines of business. The capital allocation is obtained by minimizing the sum of the expected squared differences between the liability in each line of business and the value of the corresponding investment portfolio. We show that in certain circumstances the bottom-up approach is consistent with the top–down approach, where the optimal capital is determined for the whole portfolio rather than its individual components. Such a case happens for example if the same weight function is used for all lines of business in the two approaches. Finally, we obtain investment portfolios under some limitations on short sales.

Original language	English
Pages (from-to)	69-95
Number of pages	27
Journal	European Actuarial Journal
Volume	3
Issue number	1
DOIs	https://doi.org/10.1007/s13385-013-0067-7
State	Published - 1 Jul 2013
Externally published	Yes

Bibliographical note

Funding Information:
The author thanks Andreas Tsanakas for his helpful comments and suggestions during the research. The author gratefully acknowledges the financial support of the Actuarial Profession in Britain (research grant “Optimal premium and capital allocation in non-life insurance”). Finally, the author thanks the anonymous referees for their important remarks.

Publisher Copyright:
© 2013, DAV / DGVFM.

Keywords

Asset-Liability Management
Capital allocation
Optimization
Portfolio selection
Short sale
Solvency

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10.1007/s13385-013-0067-7

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The optimal asset and liability portfolio for a financial institution with multiple lines of businesses

Abstract

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Keywords

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