Optimal multistage defined-benefit pension fund management

Giorgio Consigli, Vittorio Moriggia, Elena Benincasa, Giacomo Landoni, Filomena Petronio, Sebastiano Vitali, Massimo di Tria, Mario Skoric, Angelo Uristani

Research output: Chapter in Book/Report/Conference proceedingChapterpeer-review

5 Scopus citations

Abstract

We present an asset-liability management (ALM) model designed to support optimal strategic planning by a defined benefit (DB) occupational pension fund (PF) manager. PF ALM problems are by nature long-term decision problems with stochastic elements affecting both assets and liabilities. Increasingly PFs operating in the second pillar of modern pension systems are subject to mark-to-market accounting standards and constrained to monitor their risk capital exposure over time. The ALM problem is formulated as a multi-stage stochastic program (MSP) with an underlying scenario tree structure in which decision stages are combined with non-decision annual stages aimed at mapping carefully the evolution of PF’s liabilities. We present a case-study of an underfunded PF with an initial liquidity shortage and show how a dynamic policy, relying on a set of specific decision criteria, is able to gain a long-term equilibrium solvency condition over a 20 year horizon.

Original languageBritish English
Title of host publicationInternational Series in Operations Research and Management Science
Pages267-296
Number of pages30
DOIs
StatePublished - 2018

Publication series

NameInternational Series in Operations Research and Management Science
Volume257
ISSN (Print)0884-8289

Keywords

  • Defined benefits
  • Multistage stochastic programming
  • Pension fund management
  • Scenario tree
  • Solvency ratio

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