The matching of assets to liabilities
The purpose of this paper is to present the results of a new study in which the matching position is well defined by reference to appropriate actuarial models. The new theory leads to specific portfolio structures which comprise fixed interest and equity or index-linked investments and which, in a defined sense, are the best match to the given liabilities. As will be shown, the advantages of this approach emerge in a variety of applications, especially to problems of pension funds. In particular it is found possible to quantify aspects of actuarial valuation which would otherwise only be considered in the light of general reasoning.