Strategic Asset Allocation for Life Insurers with Stochastic Liability

The problem of strategic asset allocation and product mix choice of a life insurance company is considered where account is taken of the stochastic risk associated with both assets and liabilities. Using the methods of stochastic dynamic programming we derive equations for optimal weights of both risky and riskless assets under continuous time. The resulting equations can be solved exactly for some parameter values and utility functions. When this is not possible a general perturbation expansion method is set up for which explicit solutions are derived for the first terms but the method can be generalized to any order in the expansion parameter.