Title: The CVaR constrained stochastic programming ALM model for defined benefit pension funds

Authors: Manying Bai, Jie Ma

Addresses: School of Economics and Management, Beijing University of Astronautics and Aeronautics, Xueyuan Road No.37, Haidian District, Beijing 100191, P.R. China. ' School of Economics and Management, Beijing University of Astronautics and Aeronautics, Xueyuan Road No.37, Haidian District, Beijing 100191, P.R. China

Abstract: In this paper, a model for finding optimal contribution rates and portfolio allocations takes into account the funding situation of the fund. Using the CVaR risk measure, the model can be solved with dynamic stochastic programming techniques. Our model improves Kouwenberg|s and Bogentoft|s dynamic stochastic programming ALM model. And by adding CVaR constraints and considering the real situation of pension funds in China, we ultimately construct a new ALM model on DB enterprise pension funds. We build two models according to two different periods within the initial time and the stable period of pension funds and through optimisation methods to analyse the optimal investment strategy and obtain some useful conclusions.

Keywords: stochastic programming; asset-liability management; conditional value-at-risk; CVaR; DB enterprise pension funds; scenario generation; defined benefits; optimal contribution rates; portfolio allocation; modelling; dynamic programming; optimisation; investment strategy.

DOI: 10.1504/IJMIC.2009.028874

International Journal of Modelling, Identification and Control, 2009 Vol.8 No.1, pp.48 - 55

Published online: 09 Oct 2009 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article