A Feasibility Study of the Optimal Asset Mix for Japense Life Insurer's General Account

Japanese life insurers are often requested by their corporate pension customers to disclose their baseline portfolios for general accounts. In current low yield and negative spread situation for life insurers, baseline portfolio strategies would be, if possible, different from immunized portfolio and result in more risky asset mix. As a feasibility study of the optimal asset mix for general account, we refer to implications of basic financial theory, Merton’s problem and option theory, numerical techniques for financial modeling and its fitness to algorithm for dynamic optimization.

Keywords: ALM, Baseline portfolio, Dynamic programming, Option theory, Utility theory