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Performance enhancements for defined benefit pension plans

Mulvey, John M. and Bauerfeind, Thomas and Şimşek, Koray Deniz and Vural, Mehmet T. (2011) Performance enhancements for defined benefit pension plans. In: Bertocchi, Marida and Consigli, Giorgio and Dempster, Michael A.H., (eds.) Stochastic Optimization Methods in Finance and Energy: New Financial Products and Energy Market Strategies. International Series in Operations Research & Management Science, 163 (Part 1). Springer, New York, pp. 43-71.

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Official URL: http://dx.doi.org/10.1007/978-1-4419-9586-5_3

Abstract

Over the next several decades, traditional corporate and government pension plans will encounter increasingly severe problems in many countries. Contributing factors include underfunding status, demographic trends, low savings rates, and inefficient investment/saving strategies. This chapter takes up the last point, showing that a systematic forward-looking asset–liability management model can improve performance across many reward and risk measures. The model takes the form of a multi-stage stochastic program. We approximate the stochastic program via a set of state-dependent policy rules. A duration-enhancing overlay rule improves performance during economic contractions. The methodology is evaluated via historical backtests and a highly flexible, forward-looking financial planning tool.

Item Type:Book Section / Chapter
Uncontrolled Keywords:Asset and liability management - Financial optimization - Pension plans - Risk management - Asset allocation - Surplus optimization
Subjects:H Social Sciences > HG Finance
ID Code:18212
Deposited By:Koray Deniz Şimşek
Deposited On:07 Jan 2012 23:24
Last Modified:07 Jan 2012 23:24

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