Framework for asset-liability management with fixed-term securities
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arXiv
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| Format: | Preprint |
| Published: |
2025
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| _version_ | 1866910954487283712 |
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| author | Havrylenko, Yevhen |
| author_facet | Havrylenko, Yevhen |
| contents | We consider an optimal investment-consumption problem for a utility-maximizing investor who has access to assets with different liquidity and whose consumption rate as well as terminal wealth are subject to lower-bound constraints. Assuming utility functions that satisfy standard conditions, we develop a methodology for deriving the optimal strategies in semi-closed form. Our methodology is based on the generalized martingale approach and the decomposition of the problem into subproblems. We illustrate our approach by deriving explicit formulas for agents with power-utility functions and discuss potential extensions of the proposed framework. In numerical studies, we substantiate how the parameters of our framework impact the optimal proportion of initial capital allocated to the illiquid asset, the monetary value that the investor subjectively assigns to the fixed-term asset, and the potential of the illiquid asset to increase terminal the terminal value of liabilities without loss in the investor's expected utility. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2502_19213 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Framework for asset-liability management with fixed-term securities Havrylenko, Yevhen Mathematical Finance Optimization and Control Portfolio Management 91G10 (Primary), 90B50 (Secondary) We consider an optimal investment-consumption problem for a utility-maximizing investor who has access to assets with different liquidity and whose consumption rate as well as terminal wealth are subject to lower-bound constraints. Assuming utility functions that satisfy standard conditions, we develop a methodology for deriving the optimal strategies in semi-closed form. Our methodology is based on the generalized martingale approach and the decomposition of the problem into subproblems. We illustrate our approach by deriving explicit formulas for agents with power-utility functions and discuss potential extensions of the proposed framework. In numerical studies, we substantiate how the parameters of our framework impact the optimal proportion of initial capital allocated to the illiquid asset, the monetary value that the investor subjectively assigns to the fixed-term asset, and the potential of the illiquid asset to increase terminal the terminal value of liabilities without loss in the investor's expected utility. |
| title | Framework for asset-liability management with fixed-term securities |
| topic | Mathematical Finance Optimization and Control Portfolio Management 91G10 (Primary), 90B50 (Secondary) |
| url | https://arxiv.org/abs/2502.19213 |