A Model for the Optimal Asset-Liability Management for Insurance Companies

ABSTRACT This paper is devoted to the formulation of a model for the optimal asset-liability management for insurance companies. We focus on a typical guaranteed investment contract, by which the holder has the right to receive after T years a return that cannot be lower than a minimum predefined rate r_g. We take account of the rules that usually are imposed to insurance companies in the management of this funds as reserves and solvency margin. We formulate the problem as a stochastic optimization problem in a discrete time setting comparing this approach with the so-called hedging approach. The utility function to maximize depends on various parameters including specific goals of the company management. Some preliminary numerical results are reported to ease the comparison between the two approaches. KEYWORDS Portfolio Optimization, Asset-Liability Management, Transaction Costs