A0606
Title: Mean-variance equilibrium asset-liability management strategy with cointegrated assets
Authors: Mei Choi Chiu - The Education University of Hong Kong (Hong Kong) [presenting]
Abstract: Asset-liability management (ALM) problems are investigated in a continuous-time economy. When the financial market consists of cointegrated risky assets, institutional investors, on one hand, attempt to make profit from the cointegration feature and, on the other hand, needs 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 (MV) investors, an additional concern is the rational time-consistent (TC) issue which ensures the decision made in the future would not be restricted by the current surplus level. By putting all these ingredients together, the closed-form feedback equilibrium control the TC-MV ALM problem with cointegrated risky assets is derived. The solution procedure is built upon the HJB framework addressing time inconsistency.
