In this paper, we consider an intertemporal portfolio problem in the presence of liability constraints.
Professor of Finance, EDHEC Business SchoolScientific Director, EDHEC Risk and Asset Management Research Centre
Using the value of the liability portfolio as a natural numeraire, we find that the solution to this problem involves a three-fund separation theorem that provides formal justification to some recent so-called liability-driven investment solutions offered by several investment banks and asset management firms, which are based on investment in two underlying building blocks (in addition to the risk-free asset), the standard optimal growth portfolio and a liability hedging portfolio.
Type : | Working paper |
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Date : | le 06/03/2006 |
Pôle de recherche | Finance |