TY - JOUR

T1 - Markowitz's mean-variance asset-liability management with regime switching

T2 - A time-consistent approach

AU - Wei, J.

AU - Wong, K. C.

AU - Yam, S. C P

AU - Yung, S. P.

PY - 2013

Y1 - 2013

N2 - In this article, we provide the first study in the time consistent solution of the mean-variance asset-liability management (MVALM). The framework is even considered under a continuous time Markov regime-switching setting. Using the extended Hamilton-Jacobi-Bellman equation (HJB) (see Björk and Murgoci (2010)), we show that the time consistent equilibrium control is state dependent in the sense that it depends on the uncontrollable liability process, which is in substantial contrast with the time consistent solution of the similar problem in Björk and Murgoci (2010), in which it is independent of the state. Finally, we give a numerical comparison between our work with the corrected version (as obtained here) of pre-commitment strategy in Chen etal. (2008).

AB - In this article, we provide the first study in the time consistent solution of the mean-variance asset-liability management (MVALM). The framework is even considered under a continuous time Markov regime-switching setting. Using the extended Hamilton-Jacobi-Bellman equation (HJB) (see Björk and Murgoci (2010)), we show that the time consistent equilibrium control is state dependent in the sense that it depends on the uncontrollable liability process, which is in substantial contrast with the time consistent solution of the similar problem in Björk and Murgoci (2010), in which it is independent of the state. Finally, we give a numerical comparison between our work with the corrected version (as obtained here) of pre-commitment strategy in Chen etal. (2008).

KW - Asset-liability management

KW - Extended Hamilton-Jacobi-Bellman

KW - Mean-variance

KW - Regime switching

KW - Time consistent feedback control

UR - http://www.scopus.com/inward/record.url?scp=84879580693&partnerID=8YFLogxK

U2 - 10.1016/j.insmatheco.2013.05.008

DO - 10.1016/j.insmatheco.2013.05.008

M3 - Article

AN - SCOPUS:84879580693

VL - 53

SP - 281

EP - 291

JO - Insurance: Mathematics and Economics

JF - Insurance: Mathematics and Economics

SN - 1873-5959

IS - 1

ER -