Scenario Optimization Asset and Liability Modelling for Individual Investors

Andrea Consiglio, Flavio Cocco, Stavros A. Zenios

Risultato della ricerca: Article

11 Citazioni (Scopus)

Abstract

We develop a scenario optimization model for asset and liability management ofindividual investors. The individual has a given level of initial wealth and a target goal to bereached within some time horizon. The individual must determine an asset allocation strategyso that the portfolio growth rate will be sufficient to reach the target. A scenario optimizationmodel is formulated which maximizes the upside potential of the portfolio, with limits onthe downside risk. Both upside and downside are measured vis- `a-vis the goal. The stochasticbehavior of asset returns is captured through bootstrap simulation, and the simulation isembedded in the model to determine the optimal portfolio. Post-optimality analysis usingout-of-sample scenarios measures the probability of success of a given portfolio. It alsoallows us to estimate the required increase in the initial endowment so that the probability ofsuccess is improved.
Lingua originaleEnglish
pagine (da-a)167-191
Numero di pagine25
RivistaAnnals of Operations Research
Volume152
Stato di pubblicazionePublished - 2007

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Assets
Liability
Modeling
Individual investors
Scenarios
Simulation
Time horizon
Asset returns
Bootstrap
Optimality
Optimization model
Investors
Asset allocation
Asset and liability management
Endowments
Downside risk
Wealth
Optimal portfolio

All Science Journal Classification (ASJC) codes

  • Decision Sciences(all)
  • Management Science and Operations Research

Cita questo

Scenario Optimization Asset and Liability Modelling for Individual Investors. / Consiglio, Andrea; Cocco, Flavio; Zenios, Stavros A.

In: Annals of Operations Research, Vol. 152, 2007, pag. 167-191.

Risultato della ricerca: Article

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