Journal article
The impact of illiquidity on the asset management of insurance companies
Insurance, mathematics & economics, Vol.43(1), pp.1-14
08/01/2008
DOI: 10.1016/j.insmatheco.2007.09.005
Abstract
This paper investigates optimal asset management strategies for property and casualty insurance companies in illiquid markets. Using a cash-flow based liquidation model of an insurance company, we consider the effects of permanent and temporary price impact as well as commonality in price impact. Focusing on the interaction of a single large investor with the financial market makes the main results generally applicable for any institutional investor with stochastic future liabilities and restrictions on short-sales and financial leverage. Our analysis reveals a clear diversification benefit in illiquid markets apart from the one introduced by Markowitz [Markowitz, H., 1952. Portfolio selection. J. Financ. 7, 77–91]. In the presence of commonality, cash-flow matching is shown to be the optimal strategy for a large investor.
Details
- Title: Subtitle
- The impact of illiquidity on the asset management of insurance companies
- Creators
- Thomas R. Berry-Stölzle - University of Georgia
- Resource Type
- Journal article
- Publication Details
- Insurance, mathematics & economics, Vol.43(1), pp.1-14
- Publisher
- Elsevier B.V
- DOI
- 10.1016/j.insmatheco.2007.09.005
- ISSN
- 0167-6687
- eISSN
- 1873-5959
- Language
- English
- Date published
- 08/01/2008
- Academic Unit
- Finance
- Record Identifier
- 9984380415302771
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