Multi-period portfolio selection for asset-liability management with uncertain investment horizon

Lan Yi; Zhongfei Li; Duan Li

doi:10.3934/jimo.2008.4.535

Article Contents

2008, Volume 4, Issue 3: 535-552. Doi: 10.3934/jimo.2008.4.535

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Multi-period portfolio selection for asset-liability management with uncertain investment horizon

1.
Department of Systems Engineering and Engineering Management, The Chinese University of Hong Kong, Shatin, N. T., Hong Kong
2.
Lingnan College, Sun Yat-sen University, Guangzhou 510275, GuangDong

Received: July 31, 2007

Revised: January 31, 2008

Published: June 2008

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Abstract

It is often the case that some unexpected event may force an investor to terminate her investment and leave the market. We consider in this paper the mean-variance formulation of multi-period portfolio optimization for asset-liability management with an uncertain investment horizon. Under the assumption that exit time follows a given distribution, the problem under investigation with uncertain investment horizon can be translated into one with deterministic exit time. By making use of the embedding technique of Li and Ng (2000), we derive an analytical optimal strategy and an analytical expression of the mean-variance efficient frontier for the mean-variance formulation of the problem.

Keywords:

Uncertain investment horizon; Asset-liability(AL) management; Multi-period mean-variance formulation; Dynamic programming; Optimal investment strategy.

Mathematics Subject Classification: Primary: 90C26; Secondary: 91B28, 49N15.

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