Computation of feasible portfolio controlstrategies for an insurance company using a discrete time asset/liability model

A nonlinear discrete time asset/liability model is developed for an insurance company selling investment policies with a guaranteed minimum rate of return and a fixed maturity date. The model accommodates time-dependent investment strategies and transaction costs. At time instants where portfolio rebalancing takes place, the model implements a constraint equation dictating that the total value of assets sold must be equal to the total value of assets purchased plus the total transaction costs. Asset transactions are thus self-financing and no additional cash is required. A procedure is proposed for computing time-dependent portfolio control strategies and the initial shareholders capital, such that given nonlinear financial constraints and requirements are satisfied. Such control strategies are called feasible portfolio control strategies.