Asset Allocation with Liabilities – Redefining Risk
Wayne Pushka
May 1999

An asset allocation model is developed enabling investors to include liabilities directly into an optimization. In the process, risk is redefined as the possibility and consequences of failing to achieve one’s goals. This is an extension of Telser’s criteria. New efficient surfaces are built which differ substantially from the traditional efficient frontier. The method enables practitioners to align their investment strategies with their true objectives. It also assists them in defining their objectives and developing a better understanding of the risks they face.

Building the Expectation Function
Wayne Pushka
Wai Kong Yuen October 1999

The Expectation Function that is briefly described in the article “Asset Allocation with Liabilities – Redefining Risk” is expanded to account for non-perpetual assets (maturing bonds) and different rebalancing and reinvestment mechanisms.

Objective Function
Wayne Pushka
Dec 1999

The Objective Function that is briefly described in the article “Asset Allocation with Liabilities – Redefining Risk” is expanded to account for risks as well as goals. It briefly demonstrates how this approach can account for the mean variance approach, the Allais paradox and regret.

Sample Creation
Wai Kong Yuen
Wayne Pushka
Dec 1999

An appendix that discusses how to create samples for portfolio optimization.

Estimation Methods
Wai Kong Yuen
Wayne Pushka
Dec 1999

A discussion of how to take economic and asset return forecasts and properly input them into a quantitative model. The article describes the statistical pitfalls that should be considered.