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Optimal portfolio selection for general provisioning and terminal wealth problems

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  • Van Weert, Koen
  • Dhaene, Jan
  • Goovaerts, Marc

Abstract

In Dhaene et al. (2005), multiperiod portfolio selection problems are discussed, using an analytical approach to find optimal constant mix investment strategies in a provisioning or a savings context. In this paper we extend some of these results, investigating some specific, real-life situations. The problems that we consider in the first section of this paper are general in the sense that they allow for liabilities that can be both positive or negative, as opposed to Dhaene et al. (2005), where all liabilities have to be of the same sign. Secondly, we generalize portfolio selection problems to the case where a minimal return requirement is imposed. We derive an intuitive formula that can be used in provisioning and terminal wealth problems as a constraint on the admissible investment portfolios, in order to guarantee a minimal annualized return. We apply our results to optimal portfolio selection.

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  • Van Weert, Koen & Dhaene, Jan & Goovaerts, Marc, 2010. "Optimal portfolio selection for general provisioning and terminal wealth problems," Insurance: Mathematics and Economics, Elsevier, vol. 47(1), pages 90-97, August.
    • Handle: RePEc:eee:insuma:v:47:y:2010:i:1:p:90-97
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    1. Sun, Yufei & Aw, Grace & Loxton, Ryan & Teo, Kok Lay, 2017. "Chance-constrained optimization for pension fund portfolios in the presence of default risk," European Journal of Operational Research, Elsevier, vol. 256(1), pages 205-214.
    2. Leung, Andrew P., 2011. "Reactive investment strategies," Insurance: Mathematics and Economics, Elsevier, vol. 49(1), pages 89-99, July.
    3. Donnelly, Catherine & Gerrard, Russell & Guillén, Montserrat & Nielsen, Jens Perch, 2015. "Less is more: Increasing retirement gains by using an upside terminal wealth constraint," Insurance: Mathematics and Economics, Elsevier, vol. 64(C), pages 259-267.
    4. Dhaene, Jan & Goovaerts, Marc & Vanmaele, Michèle & Van Weert, Koen, 2012. "Convex order approximations in the case of cash flows of mixed signs," Insurance: Mathematics and Economics, Elsevier, vol. 51(2), pages 249-256.
    5. Catherine Donnelly & Russell Gerrard & Montserrat Guillén & Jens Perch Nielsen, 2015. "Less is more: increasing retirement gains by using an upside terminal wealth constraint," Working Papers 2015-02, Universitat de Barcelona, UB Riskcenter.

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