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Title: Dynamic asset (and liability) management under market and credit risk
Authors: Jobst, NJ
Mitra, G
Zenios, SA
Keywords: Credit risk;Default risk;Asset and liability management;Stochastic programming
Issue Date: 2003
Publisher: The Centre for the Analysis of Risk and Optimisation Modelling Applications (CARISMA), Brunel University
Citation: The Centre for the Analysis of Risk and Optimisation Modelling Applications (CARISMA), Brunel University;Technical Reports, CTR/03/03
Abstract: We introduce a modelling paradigm which integrates credit risk and market risk in describing the random dynamical behaviour of the underlying fixed income assets. We then consider an asset and liability management (ALM) problem and develop a mul- tistage stochastic programming model which focuses on optimum risk decisions. These models exploit the dynamical multiperiod structure of credit risk and provide insight into the corrective recourse decisions whereby issues such as the timing risk of default is appropriately taken into consideration. We also present a index tracking model in which risk is measured (and optimised) by the CVaR of the tracking portfolio in relation to the index. Both in- and out-of-sample (backtesting) experiments are undertaken to validate our approach. In this way we are able to demonstrate the feasibility and flexibility of the chosen framework.
Appears in Collections:Dept of Mathematics Research Papers
Mathematical Sciences

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