Article ID: | iaor200942195 |
Country: | United States |
Volume: | 56 |
Issue: | 5 |
Start Page Number: | 1066 |
End Page Number: | 1078 |
Publication Date: | Sep 2008 |
Journal: | Operations Research |
Authors: | Mulvey John M, Simsek Koray D, Zhang Zhuojuan, Fabozzi Frank J, Pauling William R |
Keywords: | investment, economics |
The defined–benefit pension system poses substantial, long–term risks for the U.S. economy. We describe a flexible asset–liability management (ALM) system for pension planning. The primary goals are to improve the performance and survivability of the pension trust. We first employ a stochastic program for enhancing investment strategies in light of company and other goals and pension risk constraints. The results are linked with a policy simulator for further analysis. We illustrate the concepts via two disparate real–world companies. The first is a slowly growing auto company, and the second a profitable pharmaceutical enterprise. We show that a stochastic program can help in the process of discovering sound policy rules. The ALM system has been employed extensively throughout the world by a large global actuarial firm.