Asset-liability management for Czech pension funds using stochastic programming |
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Authors: | Jitka Dupa?ová Jan Polívka |
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Institution: | (1) Department of Probability and Mathematical Statistics, Charles University Prague, Sokolovská 83, 186 75 Prague, Czech Republic |
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Abstract: | It is possible to model a wide range of portfolio management problems using stochastic programming. This approach requires
the generation of input scenarios and probabilities, which represent the evolution of the return on investment, the stream
of liabilities and other random phenomena of the problem and respect the no-arbitrage properties. The quality of the recommended
capital allocation depends on the quality of the input scenarios and a validation of results is necessary. Appropriate scenario
generation techniques and output analysis methods are described in the context of defined contribution pension fund and applied
to the specific model of a Czech pension fund. The numerical results indicate various components that influence the recommended
investment decisions and the fund’s achievements. In particular, the initial balance sheet position of the pension fund is
important for the optimal investment strategy because of the accounting rules embedded in the model and tracking of both the
market and purchasing value of assets. |
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Keywords: | Defined contribution plan ALM Scenario-based stochastic programs Output analysis Case study |
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