Publication: Mean-Variance Asset Liability Management with State-Dependent Risk Aversion
Issued Date
2017-01-02
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ISSN
10920277
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2-s2.0-85014956184
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Mahidol University
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SCOPUS
Bibliographic Citation
North American Actuarial Journal. Vol.21, No.1 (2017), 87-106
Suggested Citation
Yan Zhang, Yonghong Wu, Shuang Li, Benchawan Wiwatanapataphee Mean-Variance Asset Liability Management with State-Dependent Risk Aversion. North American Actuarial Journal. Vol.21, No.1 (2017), 87-106. doi:10.1080/10920277.2016.1247719 Retrieved from: https://repository.li.mahidol.ac.th/handle/20.500.14594/42412
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Title
Mean-Variance Asset Liability Management with State-Dependent Risk Aversion
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Abstract
© 2017, Copyright © Society of Actuaries. This article investigates the asset liability management problem with state-dependent risk aversion under the mean-variance criterion. The investor allocates the wealth among multiple assets including a risk-free asset and multiple risky assets governed by a system of geometric Brownian motion stochastic differential equations, and the investor faces the risk of paying uncontrollable random liabilities. The state-dependent risk aversion is taken into account in our model, linking the risk aversion to the current wealth held by the investor. An extended Hamilton-Jacobi-Bellman system is established for the optimization of asset liability management, and by solving the extended Hamilton-Jacobi-Bellman system, the analytical closed-form expressions for the time-inconsistent optimal investment strategies and the optimal value function are derived. Finally, numerical examples are presented to illustrate our results.