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Liability valuation and optimal asset allocation

Inkmann, Joachim and Blake, David (2004) Liability valuation and optimal asset allocation. Discussion paper: UBS Pensions Series 027, 507. Financial Markets Group, London School of Economics and Political Science, London, UK.

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Abstract

Current approaches to asset-liability management employ a sequence of distinct procedures to value liabilities and determine the asset allocation. First, a discount rate that is usually dic-tated by accounting standards is used to value liabilities. Second, the asset allocation is determined by maximizing some objective function in the surplus of assets over liabilities, taken as given the valuation of liabilities. We introduce a model that allows for the joint valuation of liabilities and the determination of the optimal asset allocation using discount rates that ap-propriately reflect default risk. We focus on the case of a defined benefit pension plan.

Item Type: Monograph (Discussion Paper)
Official URL: http://fmg.lse.ac.uk
Additional Information: © 2004 The Authors
Library of Congress subject classification: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation
G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
G - Financial Economics > G2 - Financial Institutions and Services > G23 - Pension Funds; Other Private Financial Institutions
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Collections > LSE Financial Markets Group (FMG) Working Papers
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 507
Date Deposited: 06 Aug 2009 11:02
URL: http://eprints.lse.ac.uk/24754/

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