ASSET-LIABILITY MANAGEMENT MODELS IN DECISION MAKING

Abstract

This paper uses an asset-liability management model to solve multi-period investment problems. The model aims to maximize the overall revenue and deal with uncertainties as well as with risks. The assumption of a linear utility function may lead to allocation of the wealth to one asset. This paper sheds some light on this issue by showing that the linear function can be a risky choice. For this purpose to solve multi-period investment problem we used two ways: first, using a piecewise linear function; and second using a non-linear utility function. The results show that the non-linear function outperform the piecewise linear function and generates better asset allocation. The problem is formulated by using the Wolfram Mathematical Programming System.