Assisting defined-benefit pension plans
Mulvey, John M. and Şimşek, Koray Deniz and Zhang, Zhuojuan and Fabozzi, Frank J. and Pauling, William R. (2008) Assisting defined-benefit pension plans. Operations Research, 56 (5). pp. 1066-1078. ISSN 0030-364X
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Official URL: http://dx.doi.org/10.1287/opre.1080.0526
The defined-benefit pension system poses substantial, long-term risks for the U.S. economy. We describe a flexible asset-liability management (ALM) system for pension planning. The primary goals are to improve the performance and survivability of the pension trust. We first employ a stochastic program for enhancing investment strategies in light of company and other goals and pension risk constraints. The results are linked with a policy simulator for further analysis. We illustrate the concepts via two disparate real-world companies. The first is a slowly growing auto company, and the second, a profitable pharmaceutical enterprise. We show that a stochastic program can help in the process of discovering sound policy rules. The ALM system has been employed extensively throughout the world by a large global actuarial firm.
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