Optimal investment strategy for asset-liability management under the Heston model

Pan, Jing; Hu, Shengzhou; Zhou, Xiangying

doi:10.1080/02331934.2018.1561691

Cited by 15 publications

(4 citation statements)

References 27 publications

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“…Therefore, negative liabilities are allowed, which means that the stochastic income is larger than the real liability. Similar specifications on the liability process can found in some literature, such as Xie et al [49], Pan et al [39], and Pan et al [40].…”

Section: Example 23 (The Schöbel and Zhu Model) If We Set µsupporting

confidence: 73%

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Optimal investment strategies for asset-liability management with affine diffusion factor processes and HARA preferences

Zhang

2023

JIMO

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<p style='text-indent:20px;'>This paper investigates an optimal asset-liability management problem within the expected utility maximization framework. The general hyperbolic absolute risk aversion (HARA) utility is adopted to describe the risk preference of the asset-liability manager. The financial market comprises a risk-free asset and a risky asset. The market price of risk depends on an affine diffusion factor process, which includes, but is not limited to, the constant elasticity of variance (CEV), Stein-Stein, Schöbel and Zhu, Heston, 3/2, 4/2 models, and some non-Markovian models, as exceptional examples. The accumulative liability process is featured by a generalized drifted Brownian motion with possibly unbounded and non-Markovian drift and diffusion coefficients. Due to the sophisticated structure of HARA utility and the non-Markovian framework of the incomplete financial market, a backward stochastic differential equation (BSDE) approach is adopted. By solving a recursively coupled BSDE system, closed-form expressions for both the optimal investment strategy and optimal value function are derived. Moreover, explicit solutions to some particular cases of our model are provided. Finally, numerical examples are presented to illustrate the effect of model parameters on the optimal investment strategies in several particular cases.</p>

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Section: Example 23 (The Schöbel and Zhu Model) If We Set µsupporting

confidence: 73%

“…Zhang [54] studied a meanvariance ALM problem under the CIR short rate of interest and state-of-the-art 4/2 stochastic volatility model with derivatives trading. Besides the mean-variance criterion, by using the dynamic programming approach, Pan et al [40] considered an ALM problem with exponential utility under the Heston model.…”

mentioning

confidence: 99%

Optimal investment strategies for asset-liability management with affine diffusion factor processes and HARA preferences

Zhang

2023

JIMO

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“…Pan et al [125] have used ALM models to obtain the optimal investment strategy and minimize its risk. This research has tried to use the optimal strategy for investors to invest in different assets with different risks using the price process by the Heston model.…”

Section: Kosmidou and Zopounidismentioning

confidence: 99%

Optimization of Asset and Liability Management of Banks with Minimum Possible Changes

et al. 2023

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Asset-Liability Management (ALM) of banks is defined as simultaneous planning of all bank assets and liabilities under different conditions and its purpose is to maximize profits and minimize the risks in banks by optimizing the parameters in the balance sheet. Most of the studies `and proposed models in the ALM field are based on an objective function that maximizes bank profit. It is not easy to apply changes in these models in order to reach the optimal values of the parameters in the balance sheet. In this article, an attempt has been made to propose a linear model using constraints to achieve optimal values of balance sheet parameters using ALM objectives and considering balance sheet, system and regulatory constraints. It has also been tried to design the model according to the most possible mode and with the least changes and to minimize the size of the balance sheet. The analysis of the model presented in this article has been conducted using the parameters of the balance sheet and income statement of one of the famous Iranian banks. The results obtained from the proposed model show that the values of cash and receivables from banks and other credit institutions have decreased by 30% and increased by 200%, respectively, compared to the actual values of these parameters. Also, Total Income, Operating Income and Non-Operating Income have grown by 30% compared to the actual values of these parameters. Also, the values of a number of parameters are estimated to be zero after optimization. According to the results, it is obvious that the performance of bank managers, especially in the management of bank assets, is significantly different from the optimal values of the balance sheet, and the results obtained from the proposed model can help the management of banks as much as possible.

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“…Pan and Xiao (2017) study an asset liability management model with stochastic interest rates and inflation risks. Pan et al (2019) further investigate this problem under the Heston model.…”

Section: Introductionmentioning

confidence: 99%

Robust Optimal Investment Problem with Delay under Heston’s Model

Zhao

2021

Methodol Comput Appl Probab

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This paper considers a robust optimal portfolio problem under Heston model in which the risky asset price is related to the historical performance. The finance market includes a riskless asset and a risky asset whose price is controlled by a stochastic delay equation. The objective is to choose the investment strategy to maximize the minimal expected utility of terminal wealth. By employing dynamic programming principle and Hamilton-Jacobin-Bellman (HJB) equation, we obtain the specific expression of the optimal control and the explicit solution of the corresponding HJB equation. Besides, a verification theorem is provided to ensure the value function is indeed the solution of the HJB equation. Finally, we use numerical examples to illustrate the relationship between the optimal strategy and parameters.

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Optimal investment strategy for asset-liability management under the Heston model

Cited by 15 publications

References 27 publications

Optimal investment strategies for asset-liability management with affine diffusion factor processes and HARA preferences

Optimal investment strategies for asset-liability management with affine diffusion factor processes and HARA preferences

Optimization of Asset and Liability Management of Banks with Minimum Possible Changes

Robust Optimal Investment Problem with Delay under Heston’s Model

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