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A stochastic programming model for asset liability management of a Finnish pension company

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  • Petri Hilli
  • Matti Koivu
  • Teemu Pennanen
  • Antero Ranne

Abstract

This paper describes a stochastic programming model that was developed for asset liability management of a Finnish pension insurance company. In many respects the model resembles those presented in the literature, but it has some unique features stemming from the statutory restrictions for Finnish pension insurance companies. Particular attention is paid to modeling the stochastic factors, numerical solution of the resulting optimization problem and evaluation of the solution. Out-of-sample tests clearly favor the strategies suggested by our model over static fixed-mix and dynamic portfolio insurance strategies. Copyright Springer Science+Business Media, LLC 2007

Suggested Citation

  • Petri Hilli & Matti Koivu & Teemu Pennanen & Antero Ranne, 2007. "A stochastic programming model for asset liability management of a Finnish pension company," Annals of Operations Research, Springer, vol. 152(1), pages 115-139, July.
    • Handle: RePEc:spr:annopr:v:152:y:2007:i:1:p:115-139:10.1007/s10479-006-0135-3
    DOI: 10.1007/s10479-006-0135-3
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    References listed on IDEAS

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    Cited by:

    1. Libo Yin & Liyan Han, 2013. "Options strategies for international portfolios with overall risk management via multi-stage stochastic programming," Annals of Operations Research, Springer, vol. 206(1), pages 557-576, July.
    2. Johan G. Andréasson & Pavel V. Shevchenko, 2017. "Assessment of Policy Changes to Means-Tested Age Pension Using the Expected Utility Model: Implication for Decisions in Retirement," Risks, MDPI, vol. 5(3), pages 1-21, September.
    3. Duarte, Thiago B. & Valladão, Davi M. & Veiga, Álvaro, 2017. "Asset liability management for open pension schemes using multistage stochastic programming under Solvency-II-based regulatory constraints," Insurance: Mathematics and Economics, Elsevier, vol. 77(C), pages 177-188.
    4. Davi Michel Valladão & Álvaro Veiga & Alexandre Street, 2018. "A Linear Stochastic Programming Model for Optimal Leveraged Portfolio Selection," Computational Economics, Springer;Society for Computational Economics, vol. 51(4), pages 1021-1032, April.
    5. Valladão, Davi M. & Veiga, Álvaro & Veiga, Geraldo, 2014. "A multistage linear stochastic programming model for optimal corporate debt management," European Journal of Operational Research, Elsevier, vol. 237(1), pages 303-311.
    6. Woong Bee Choi & Dongyeol Lee & Woo Chang Kim, 2021. "Extending the Scope of ALM to Social Investment: Investing in Population Growth to Enhance Sustainability of the Korean National Pension Service," Sustainability, MDPI, vol. 13(1), pages 1-14, January.
    7. Grzegorz Hałaj, 2016. "Dynamic Balance Sheet Model With Liquidity Risk," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 19(07), pages 1-37, November.
    8. Sebastiano Vitali & Vittorio Moriggia & Miloš Kopa, 2017. "Optimal pension fund composition for an Italian private pension plan sponsor," Computational Management Science, Springer, vol. 14(1), pages 135-160, January.
    9. John M Mulvey & Woo Chang Kim & Yi Ma, 2010. "Duration-enhancing overlay strategies for defined benefit pension plans," Journal of Asset Management, Palgrave Macmillan, vol. 11(2), pages 136-162, June.

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