THE RUSSELL-YASUDA KASIA MODEL - AN ASSET LIABILITY MODEL FOR A JAPANESE INSURANCE COMPANY USING MULTISTAGE STOCHASTIC-PROGRAMMING

Frank Russell Company and The Yasuda Fire and Marine Insurance Co., Lt d., developed an asset/liability management model using multistage sto chastic programming. It determines an optimal investment strategy that incorporates a multiperiod approach and enables the decision makers t o define risks in tangible operational terms. It also handles the comp lex regulations imposed by Japanese insurance laws and practices. The most important goal is to produce a high-income return to pay annual i nterest on savings-type insurance policies without sacrificing the goa l of maximizing the long-term wealth of the firm. During the first two years of use, fiscal 1991 and 1992, the investment strategy devised b y the model yielded extra income of 42 basis points (8.7 billion Yen o r US$79 million).