A theoretical analysis of the matching of assets to liabilities

Abstract

1.1. This paper is supplementary to another by the same author on the subject of matching. It describes the mathematical analysis of the following problem.1.2. We are given:1. a pattern of expected future cash flows under a pension scheme or insurance contract;2. a set of investments available for purchase; and3. a model of the future behaviour of investment conditions.What set or sets of available investments would provide the best match against the given liabilities in order to minimize any likely surplus or deficiency on completion of the liability cash flows?