Liability-driven investment strategy and portfolio immunization: a dynamicalapproach.

Since the recent financial meltdown and because of the current economic instability, many fund

managers tend to shift their total-return-oriented investment approach toward a liability-driven

investment (‘LOI’) strategy. The main objective of such a strategy is to find investment portfolios that

will match or outperform a liability stream (pensions, insurance claims, etc.). In a previous MITACS

project in collaboration with Addenda Capital, we investigated two basic liability matching strategies:

cashflow matching and moment matching. These strategies are now in use within funds managed by

Addenda Capital. The main objective of the present project is to further enhance the two methods.

The two LOI strategies are implemented by optimal selection of a portfolio of bonds (among a large

universe of liquid bonds) that will best match the cashflows or the moments of the liability stream. With

the passage of time the selected portfolio may no longer be optimal and may therefore require rebalancing.

We propose to implement multi-stage algorithms where the…..TOBECONTINUED

Faculty Supervisor:

Alain Belanger

Student:

Partner:

Addenda Capital (Montréal, QC)

Discipline:

Business

Sector:

University:

Université de Sherbrooke

Program:

Accelerate

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