Dynamic optimisation for investors

In this paper the author uses a simple two-step approach to represent the dynamics of strategic asset allocation composition. He shows that this approach significantly reduces risk assessment compared with static optimisation

The approach described in this paper may be used for the following contexts: defined benefit schemes for pension funds, long-term decommissioning costs and nuclear fuel wastes. More generally the model discussed here is suitable for any kind of future costs (liabilities) that may be insulated in a dedicated fund and that are quite stable. Then we assume that the investor has to finance predetermined future liabilities (which are not random variables). The current net asset value will be below