Robust asset-liability management under CRRA utility criterion with regime switching: a continuous-time model

Abstract

This article describes a robust continuous-time asset-liability management problem under Markov regime-switching. First, we employ the “homothetic robustness” to preserve the performance of robustness for the ALM model, which runs well in precisely modified state variables and performs reasonably if some forms of model misspecification exist. Second, we consider the asset-to-liability ratio instead of the surplus, which ensures that we use relative values instead of absolute values to modify the wealth process. Besides, we use the stochastic dynamic programming method to get some closed-form results and analyze the impacts of parameters on the investment strategy and value function, respectively, by numerical examples.