A. de Schepper
- A path integral approach to asset-liability management
- Physica A : Statistical Mechanics and its Applications
- Volume | Issue number
- 363 | 2
- Pages (from-to)
- Number of pages
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
Functional integrals constitute a powerful tool in the investigation of financial models. In the recent econophysics literature, this technique was successfully used for the pricing of a number of derivative securities. In the present contribution, we introduce this approach to the field of asset-liability management. We work with a representation of cash flows by means of a two-dimensional delta-function perturbation, in the case of a Brownian model and a geometric Brownian model. We derive closed-form solutions for a finite horizon ALM policy. The results are numerically and graphically illustrated.
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