Abstract

Multistage stochastic programming # in contrast to stochastic control # has found wide application in the formulation and solution of #nancial problems characterized by a large number of state variables and a generally lownumber of possible decision stages. The literature on the use of multistage recourse modelling to formalize complex portfolio optimization problems dates back to the early seventies, when the technique was #rst adopted to solve a #xed interest security portfolio problem. We present here the CALM model which has been designed to deal with uncertainty a#ecting both assets #in either the portfolio or the market# and liabilities #in the form of scenario dependentpayments or borrowing costs#. We consider as an instance a pension fund problem in which portfolio rebalancing is allowed over a long-term horizon at discrete time points and where liabilities refer to #ve di#erent classes of pension contracts. The portfolio manager, given an initial wealth, seeks the maximization...

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