Reactive investment strategies

Andrew Leung

Research output: Contribution to journalArticleResearchpeer-review

2 Citations (Scopus)


Asset liability management is a key aspect of the operation of all financial institutions. In this endeavor, asset allocation is considered the most important element of investment management. Asset allocation strategies may be static, and as such are usually assessed under asset models of various degrees of complexity and sophistication. In recent years attention has turned to dynamic strategies, which promise to control risk more effectively. In this paper we present a new class of dynamic asset strategy, which respond to actual events. Hence they are referred to as a??reactivea?? strategies. They cannot be characterized as a series of specific asset allocations over time, but comprise rules for determining such allocations as the world evolves. Though they depend on how asset returns and other financial variables are modeled, they are otherwise objective in nature. The resulting strategies are optimal, in the sense that they can be shown to outperform all other strategies of their type when no asset allocation constraints are imposed. Where such constraints are imposed, the strategies may be demonstrated to be almost optimal, and dramatically more effective than static strategies,
Original languageEnglish
Pages (from-to)89 - 99
Number of pages11
JournalInsurance: Mathematics and Economics
Issue number1
Publication statusPublished - 2011

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