On multistage stochastic integer programming for incorporating logical constraints in asset and liability management under uncertainty

We present a model for optimizing a mean-risk function of the terminal wealth for a fixed income asset portfolio restructuring with uncertainty in the interest rate path and the liabilities along a given time horizon. Some logical constraints are considered to be satisfied by the assets portfolio. Uncertainty is represented by a scenario tree and is dealt with by a multistage stochastic mixed 0-1 model with complete recourse. The problem is modelled as a splitting variable representation of the Deterministic Equivalent Model for the stochastic model, where the 0-1 variables and the continuous variables appear at any stage. A Branch-and-Fix Coordination approach for the multistage 0-1 program solving is proposed. Some computational experience is reported. © Springer-Verlag 2006.