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.

[1]   The CPP Investment Board, 2013.

[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.

[8]   The Japanese Ministry of Health, Labour and Welfare, 2013.