In the context of the historical development of portfolio theory the authors describe a stochastic asset/liability modelling exercise for a closed pension fund portfolio, illustrating the reduction in variance of estimated future surplus which can be achieved by investment in index-linked securities. Equity investment would increase the expected level of surplus, but the outcome would be more u...

In Asset and Liability Management (ALM) models, there are parameters whose values not known with certainty at decision time, such as future asset returns, liability contribution values. Simulation models generate possible “scenarios” for these parameters, which used inputs in the optimisation help thus making decisions. These decisions can be evaluated sample, on same scenarios that were decisi...

The Korean National Pension Service (NPS) is a partially funded and defined-benefit system. Although the accumulated Fund of NPS has been increased gradually, this large fund concerned about depletion in near future due to unprecedented aging population low fertility rate. In study, we have developed an asset-liability management (ALM) model that endogenizes variables which were regarded as bei...

Dynamic financial analysis (DFA) is a technique which uses Monte Carlo simulation to investigate the evolution over time of financial models of funds, complex liabilities and entire firms. Although of increasing popularity, the drawback of DFA is the dearth of systematic methods for optimising model parameters for strategic financial planning. This paper introduces strategic DFA which employs t...

This paper presents an optimization approach to analyze the problems of portfolio selection for longterm investments, taking into consideration the specific target replacement ratio for defined-contribution (DC) pension scheme; the purpose is to generate an effective multi-period asset allocation that reaches an amount matching the target liability at retirement date and reduce the downside ris...

Executive Summary. This article examines the portfolio allocation decision within an asset/liability framework. Here portfolio weights are chosen not just by an asset’s return and variance but also by its correlation with pension liabilities. This results in assets that are highly correlated with pension liabilities being weighted higher in the portfolio. Typical mean-variance models estimate a...

AESTRACT In this paper we extend the continuous-time dynamic programming approach for Asset/Liability Management from Boulier et al. (1995). It is an extension in the sense that we consider objective functions for pension fund management that are different from the standard quadratic loss functions. In particular, we calculate optimal policies for a loss Rmction with Constant Relative Risk Aver...