Thanks for the tip on the ISO web site. I'll check it out.
As far as the additional constraint on the asset classes, this is set by
external considerations such as regulatory restrictions, or the
comfort/discomfort of management/board being in certain types of assets.
You mentioned, "If you vary your assets to maximize return subject to a
variance constraint . . ." I'm assuming that you're referring to the
probability of surplus decline constraint. The actual probability of
surplus decline constraint that I've seen is the ratio of expected return on
equity to the variance of return on equity. By using this as a constraint,
you actually increase your "risk" as measured by variance as you increase
your return.
Thanks again,
Kirk
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