A Stochastic Dynamic Programming Model for the Optimization of Asset/Liability Management in Iranian Insurance Companies

This paper provides a Stochastic Dynamic Programming (SDP) model for the optimization of Asset/Liability Management (ALM) in Iranian Insurance Companies (IIC). Regarding the legal and the operational constraints, and the characteristic of investment operations in Iran, the proposed SDP model maximizes the most important stockholder oriented objective of the insurance companies (long term wealth) by maximizing net present value of the companies’ future cash flows minus costs of deviations from goal constraints. Results of the proposed SDP model are compared to that of the proposed Deterministic Dynamic Programming (DDP) model and to the present condition in which the companies operate. The results show that the proposed SDP model meaningfully outperforms results of the DDP model and the present condition of the operations.