An Application of Chance Constrained Programming to Portfolio Selection in a Casualty Insurance Firm

The problem of portfolio selection is discussed with special emphasis on the casualty insurance firm. A single period optimisation model is developed in which expected return is maximized subject to a chance constraint requiring return to be greater than some lower bound with a stipulated probabilit...

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Bibliographic Details
Published in:Management science 1969-06, Vol.15 (10), p.B-512-B-520
Main Authors: Agnew, N. H, Agnew, R. A, Rasmussen, J, Smith, K. R
Format: Article
Language:English
Subjects:
Cash management
Insurance industry
Insurance premiums
Liquid assets
Policyholders
Probability distribution
Property & casualty insurance
Random variables
Rates of return
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Summary:The problem of portfolio selection is discussed with special emphasis on the casualty insurance firm. A single period optimisation model is developed in which expected return is maximized subject to a chance constraint requiring return to be greater than some lower bound with a stipulated probability. It is demonstrated that this approach provides an operational means of selecting a Baumol efficient portfolio. Additional chance constraints are used to maintain the firm's liquidity. The evaluation of optimal portfolios is discussed and the evaluators for the portfolio model are developed. Finally, an example is provided.
ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.15.10.B512