A Simheuristic Algorithm for Reliable Asset and Liability Management Under Uncertainty Scenarios

Abstract

The management of assets and liabilities is of critical importance for insurance companies and banks. Complex decisions need to be made regarding how to assign assets to liabilities in such a way that the overall benefit is maximised over a time horizon. In addition, the risk of not being able to cover the liabilities at any given time must be kept under a certain threshold level. This optimisation challenge is known in the literature as the asset and liability management (ALM) problem. In this work, we propose a biased-randomized (BR) algorithm to solve a deterministic version of the ALM problem. Firstly, we outline a greedy heuristic. Secondly, we transform it into a BR algorithm by employing skewed probability distributions. The BR algorithm is then extended into a simheuristic by incorporating Monte-Carlo simulation to deal with the stochastic version of the problem.