On multistage Stochastic Integer Programming (SIP) for incorporating logical constraints in asset and liability management under uncertainty

On multistage Stochastic Integer Programming (SIP) for incorporating logical constraints in asset and liability management under uncertainty

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Article ID: iaor200971042
Country: Germany
Volume: 6
Issue: 3
Start Page Number: 307
End Page Number: 327
Publication Date: Aug 2009
Journal: Computational Management Science
Authors: , , ,
Keywords: programming: integer
Abstract:

We present a model for optimizing a mean-risk function of the terminal wealth for a fixed income asset portfolio restructuring with uncertainty in the interest rate path and the liabilities along a given time horizon. Some logical constraints are considered to be satisfied by the assets portfolio. Uncertainty is represented by a scenario tree and is dealt with by a multistage stochastic mixed 0-1 model with complete recourse. The problem is modelled as a splitting variable representation of the Deterministic Equivalent Model for the stochastic model, where the 0-1 variables and the continuous variables appear at any stage. A Branch-and-Fix Coordination approach for the multistage 0–1 program solving is proposed. Some computational experience is reported.

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