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A liability tracking approach to long term management of pension funds

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  • Masashi Ieda
  • Takashi Yamashita
  • Yumiharu Nakano
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    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.

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    File URL: http://arxiv.org/pdf/1303.3956
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1303.3956.

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    Date of creation: Mar 2013
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    Handle: RePEc:arx:papers:1303.3956

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    Web page: http://arxiv.org/

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    1. Marina Di Giacinto & Salvatore Federico & Fausto Gozzi, 2011. "Pension funds with a minimum guarantee: a stochastic control approach," Finance and Stochastics, Springer, vol. 15(2), pages 297-342, June.
    2. Francesco Menoncin, . "Risk management for pension funds," Working Papers ubs0403, University of Brescia, Department of Economics.
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