Asset and Liability Management helps insurance companies and pensions determine which securities to buy and sell in order to minimize or eliminate their unfunded liabilities.
Typical users are pension funds and insurance companies.
Problem:
Insurance Companies and Pension Funds must decide how to invest their portfolios so they are able to make the payments their customers expect from them. Invest too conservatively, and the returns will not be sufficient enough to grow the assets to meet liabilities in the far future. Invest too aggressively, and run the risk of a sharp decline in asset values.
Solution:
Asset and Liability Management (ALM) Optimization can reduce net present value of unfunded liabilities by up to several million dollars. Portfolio managers can view the tradeoffs of taking more risks and being more conservative to determine the expected impact in both the short term and the long term.
Resources on ALM:
Stochastic Programming Models in Asset-Liability Management
Stochastic Programming Models for Asset Liability Management
An Asset and Liability Management System for Towers Perrin-Tillinghast