JMF  Vol.3 No.3 , August 2013
A Liability Tracking Approach to Long Term Management of Pension Funds
ABSTRACT

We propose a long term portfolio management method which takes into account a liability. Our approach is based on the LQG (Linear, Quadratic cost, Gaussian) control problem framework and then the optimal portfolio strategy hedges the liability by directly tracking a benchmark process which represents the liability. Two numerical results using empirical data published by Japanese organizations are served: simulations tracking an artificial liability and an estimated liability of Japanese organization. The latter one demonstrates that our optimal portfolio strategy can hedge his or her liability.


Cite this paper
M. Ieda, T. Yamashita and Y. Nakano, "A Liability Tracking Approach to Long Term Management of Pension Funds," Journal of Mathematical Finance, Vol. 3 No. 3, 2013, pp. 392-400. doi: 10.4236/jmf.2013.33040.
References
[1]   The CPP Investment Board, 2013. http://www.cppib.ca/Investments/Total_Portfolio_View/

[2]   W. H. Fleming and R. W. Rishel, “Deterministic and Stochastic Optimal Control,” Springer-Verlag, New York, 1975. doi:10.1007/978-1-4612-6380-7

[3]   G. Deelstra, M. Grasselli and P.-F. Koehl, “Optimal Investment Strategies in the Presence of a Minimum Guarantee,” Insurance: Mathematics and Economics, Vol. 33, No. 1, 2003, pp. 189-207. doi:10.1016/S0167-6687(03)00153-7

[4]   M. Di Giacinto, S. Federico and F. Gozzi, “Pension Funds with a Minimum Guarantee: A Stochastic Control Approach,” Finance and Stochastics, Vol. 15, No. 2, 2010, pp. 297-342. doi:10.1007/s00780-010-0127-7

[5]   F. Menoncin and O. Scaillet, “Optimal Asset Management for Pension Funds,” Managerial Finance, Vol. 32, No. 4, 2006, pp. 347. doi:10.1108/03074350610652260

[6]   R. Gerrard, B. Hojgaard and E. Vigna, “Choosing the Optimal Annuitization Time Postretirement,” Quantitative Finance, Vol. 12, No. 7, 2012, pp. 1143-1159. doi:10.1080/14697680903358248

[7]   The Government Pension Investment Fund in Japan, 2013. http://www.gpif.go.jp/operation/committee/pdf/h191001_appendix_05.pdf

[8]   The Japanese Ministry of Health, Labour and Welfare, 2013. http://www.mhlw.go.jp/seisakunitsuite/bunya/nenkin/nenkin/zaisei-kensyo/index.html

 
 
Top