Portfolio optimisation via replication

Filippo Della Casa and Michele Gaffo propose a new framework to run portfolio optimisation for life insurance business, by exporting the replicating portfolio technique from risk management to investment management. In particular, they develop a new risk-adjusted framework to efficiently compare a series of different asset allocation opportunities. The aim is not to derive a replicating portfolio, but rather to show how to leverage on fast liabilities repricing to support the investment management function within insurance companies

The insurance industry is preparing itself for enabling a regular monitoring of the so-called economic balance sheet for steering purposes. The vast majority of insurance companies are currently developing their internal risk models in an attempt to obtain more transparency and efficiency in managing their risk exposures. Extremely volatile financial markets and the persistent low interest rate environment create an ever stronger need for frequent and sophisticated financial analysis