Linking strategic and tactical planning systems for asset and liability management

John Michael Mulvey, Chris Madsen, François Morin

Research output: Contribution to journalArticlepeer-review

6 Scopus citations

Abstract

Total enterprise risk management involves a systematic approach for evaluating/ controlling risks within a large firm such as a property-casualty insurance company. The basic idea is to coordinate planning throughout the organization, from traders and underwriters to the CFO, in order to maximize the company's economic surplus at the desired level of enterprise risk. At present, it is difficult to link strategic systems, such as asset allocation, to tactical systems for pricing securities and selecting new products. We propose two solutions. First, we develop a "price of risk" for significant decisions possessing correlated factors. Second, we create a set of dynamic investment categories, called hybrid assets, for use in an asset and liability management framework. We illustrate the concepts via an insurance planning problem, whereby the goal is to optimize the company's surplus.

Original languageEnglish (US)
Pages (from-to)249-266
Number of pages18
JournalAnnals of Operations Research
Volume85
StatePublished - Dec 1 1999

All Science Journal Classification (ASJC) codes

  • Decision Sciences(all)
  • Management Science and Operations Research

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