Annals of Operations Research

, Volume 45, Issue 1, pp 221–242 | Cite as

A two-stage approach to multi-period allocation of savings among investment plans

  • Patrick S. Lee
  • Gautam Vora


This paper presents a two-stage multi-period decision model for allocation of the individual's savings into several investment plans. Although the U.S. economy is used as the background, the modelling methods are general enough to accommodate any tax law. The first stage of the model uses an asset-allocation method based on the single-index model. Because this method is static and does not provide for tax considerations and other constraints, it alone is not enough. The output of this optimal selection is used as exogenous parameters and controls for the second stage of the model which is an integer program. The IP includes fixed charges, statutory and budgetary constraints, a discount rate, and the risk level. We provide an example of this approach to illustrate how an individual can achieve his goals of terminal accumulations while maintaining the risk level, measured by the aggregate beta, he prefers. A linear programming relaxation of the IP model is utilized for sensitivity analysis to examine whether future adjustments in investment strategies are required. The model remains tractable enough for implementation by individuals who may not be experts in mathematical programming and financial planning.


Finance multi-period models financial planning and modelling insurance mathematical programming integer programming 


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Copyright information

© J.C. Baltzer AG, Science Publishers 1993

Authors and Affiliations

  • Patrick S. Lee
    • 1
  • Gautam Vora
    • 2
  1. 1.Department of ManagementLa Salle UniversityPhiladelphiaUSA
  2. 2.Anderson Schools of ManagementUniversity of New MexicoAlbuquerqueUSA

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