Journal Article10.1080/10920277.2009.10597562
Cash Flow Matching
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TL;DR: In this article, a scenario-based optimization framework for solving the cash flow matching problem where the time horizon of the liabilities is longer than the maturities of available bonds and the interest rates are uncertain is proposed.
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Abstract: We propose a scenario-based optimization framework for solving the cash flow matching problem where the time horizon of the liabilities is longer than the maturities of available bonds and the interest rates are uncertain. Standard interest rate models can be used for scenario generation within this framework. The optimal portfolio is found by minimizing the cost at a specific level of shortfall risk measured by the conditional tail expectation (CTE), also known as conditional valueat-risk (CVaR) or Tail-VaR. The resulting optimization problem is still a linear program (LP) as in the classical cash flow matching approach. This framework can be employed in situations when the classical cash flow matching technique is not applicable.
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Citations
Cash flow matching with risks controlled by buffered probability of exceedance and conditional value-at-risk
TL;DR: A scenario based optimization framework for solving a cash flow matching problem in which the time horizon of the cash flow generated by the liability is longer than the maturities of the available bonds, and the interest rates are uncertain.
33
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