Retirement planning in individual asset-liability management

Giorgio Consigli, Gaetano Iaquinta, Vittorio Moriggia, Massimo Di Tria, Davide Musitelli

Research output: Contribution to journalArticlepeer-review

19 Scopus citations

Abstract

Increasing financial pressure on State-controlled pension systems has caused, over the last two decades or so, an unprecedented effort by private pension funds (PFs) and insurance companies to issue new types of retirement vehicles. This article investigates the effects of such widespread phenomenon from the perspective of individual asset-liability management. A multistage stochastic programming problem has been formulated with investment opportunities including PFs, unit-linked contracts and variable life annuities. The introduction of a specific risk measure with respect to a desirable retirement income stream and a planning horizon spanning the entire individuals' working life helps to analyse the implications of observed market dynamics on retirement strategies. We present comparative results focusing on the retirement planning problem for three representative individuals carrying different time horizons but common retirement goals. The results show the benefits over traditional pension accumulation plans of dynamic strategies based on mixed portfolios of retirement products. The authors 2012. Published by Oxford University Press on behalf of the Institute of Mathematics and its Applications. All rights reserved.2012

Original languageBritish English
Pages (from-to)365-396
Number of pages32
JournalIMA Journal of Management Mathematics
Volume23
Issue number4
DOIs
StatePublished - Oct 2012

Keywords

  • asset-liability management
  • individual retirement planning
  • multistage stochastic programming
  • private pension plans
  • variable life annuities

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