Multi-period portfolio selection for asset-liability management with uncertain investment horizon

Abstract

It is often the case that some unexpected event may force aninvestor to terminate her investment and leave the market. Weconsider in this paper the mean-variance formulation of multi-periodportfolio optimization for asset-liability management with anuncertain investment horizon. Under the assumption that exit timefollows a given distribution, the problem under investigation withuncertain investment horizon can be translated into one withdeterministic exit time. By making use of the embedding technique ofLi and Ng (2000), we derive an analytical optimal strategy and ananalytical expression of the mean-variance efficient frontier forthe mean-variance formulation of the problem.