Efficient Portfolios in the Asset Liability Context

The set of efficient portfolios in an asset liability model is discussed in detail. The occurrence of liabilities leads to a parallel shift of the efficient set. Under an appropriate assumption, the shift vector can be decomposed m different components. For the special case, where the investor is a pension fund, it is shown how shortfall constraints can be reconciled with efficiency. Finally, optimality conditions for the market portfolios are derived. Keywords: Portfolio Theory, Asset Liability Management, Mean Variance Analysis, Shortfall Constraint.