Risk profiliing for defined benefit pension schema using dynamical stochastic programming
2007
Given the recent changes to accounting reporting standards in the UK and Netherlands, there is a need for improved advisory tools for defined benefit pension schemes. Working within a Liability Driven Investment framework, in which the assets of a scheme are managed against a benchmark of their liabilities, we present a solution to the asset allocation problem for DB pensions schemes which uses Monte Carlo scenario generation and stochastic optimal control to create an optimal portfolio capable of tracking the scheme’s liabilities subject to user defined risk budget and funding requirements while minimising the employer contribution rate.
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