Multi-period asset-liability management with cash flows and probability constraints: A mean-field formulation approach

Abstract

Using a multi-period mean-variance model, we investigate an asset-liability portfolio management problem with probability constraints, where an investor intends to control the probability of bankruptcy before the terminal time in the investment. In our model, the wealth process is influenced not only by return on assets and liability but also by uncontrolled cash flows. Applying a mean-field formulation, we obtain closed-form expressions for an efficient investment strategy and its corresponding mean-variance efficient frontier. Sensitivity analysis is also presented to help investors understand the influences of cash flows and probability constraints better.

Keywords:

• Mean-field formulation
• multi-period mean-variance model
• asset-liability management
• probability constraints
• cash flow

Notes

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 The average interest rates are calculated on the total un-matured interest-bearing debt. See http://www.treasurydirect.gov/govt/rates/pd/avg/avg.htm

Additional information

Funding

This work was partially supported by Research Grants Council of Hong Kong under grants 15209614, 15224215 and 15255416, the National Natural Science Foundation of China (Nos. 71871071, 71471045, 71721001, 11571124 and 11671158), the Natural Science Foundation of Guangdong Province of China (Nos. 2018B030311004, 2017A030313399 and 2017A030310167), the Innovative School Project in Higher Education of Guangdong Province of China (No. GWTP-GC-2017-03), the Innovation Team Project of Guangdong Colleges and Universities (No. 2016WCXTD012), and the Opening Project of Guangdong Province Key Laboratory of Computational Science at the Sun-Yat-sen University (No. 2018008).