Matching and portfolio selection: Part 2

Abstract

8.1 This paper is concerned with the selection of investment portfolios to meet specified criteria which involve the liabilities of a long term investing institution such as a pension fund or a life office. In Part 1 (5) I showed a certain relationship between, on the one hand, portfolios selected according to a criterion of pure matching to the liabilities and, on the other hand, portfolios selected according to a more general criterion of ‘efficiency’. This connection points to a particular actuarial approach to the selection of portfolios, which is now further examined in Part 2.8.2 Writing Part 2 separately presents an opportunity to re-state the main ideas. The next few paragraphs recapitulate the basic points with a view to reducing, within the subsequent discussion, the amount of cross-reference to Part 1, and to the three preceding papers on which the study is based.