Multistage Stochastic Programming Model of Portfolio Selection for Life Insurance Companies in China

In order to help Chinese life insurance companies effectively make their portfolio selection. A portfolio selection model was established by using the method of multistage stochastic programming in this paper. In this model the management and supervision reality of Chinese life insurance industry were transferred into constraints. The quarterly return rate data of China-lifepsila investment and that of the assets in Chinese financial markets were gathered from 2004 to the first two quarters in 2008. A scenario tree was established by using these data. Benders decomposition algorithm was chosen to solve this model. Then the model was used to construct a series of portfolio for China-life in 2009. The portfolio showed that China-life should maintain over 70% of risk-free assets and less than 30% risk assets to achieve its objective of benefit and security. Also its insurance business should be concerned.