IDEAS home Printed from https://ideas.repec.org/a/spr/comgts/v14y2017i1d10.1007_s10287-016-0263-4.html
   My bibliography  Save this article

Optimal pension fund composition for an Italian private pension plan sponsor

Author

Listed:
  • Sebastiano Vitali

    (University of Bergamo)

  • Vittorio Moriggia

    (University of Bergamo)

  • Miloš Kopa

    (Charles University in Prague)

Abstract

We address the problem of a private pension plan sponsor who has to find the best pension funds for its members. Starting from a descriptive analysis of the pension plan members we identify a set of representative subscribers. Then, the optimal allocation for each representative will become a pension fund of the pension plan. For each representative, we propose a multistage stochastic program (MSP) which includes a multi-criteria objective function. The optimal choice is the portfolio allocation that minimizes the average value at risk deviation of the final wealth and satisfies a wealth target in the final stage and other constraints regarding pension plan regulations. Stochasticity arises from the investor’s salary process and from asset returns. Numerical results show the optimal dynamic portfolios with respect to the investor’s preferences and then the best pension funds the sponsor might offer.

Suggested Citation

  • 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.
    • Handle: RePEc:spr:comgts:v:14:y:2017:i:1:d:10.1007_s10287-016-0263-4
    DOI: 10.1007/s10287-016-0263-4
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10287-016-0263-4
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10287-016-0263-4?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Fabozzi, Frank J. & Focardi, Sergio M. & Jonas, Caroline L., 2005. "Market experience with modeling for defined-benefit pension funds: evidence from four countries," Journal of Pension Economics and Finance, Cambridge University Press, vol. 4(3), pages 313-327, November.
    2. Victor DeMiguel & Lorenzo Garlappi & Raman Uppal, 2009. "Optimal Versus Naive Diversification: How Inefficient is the 1-N Portfolio Strategy?," The Review of Financial Studies, Society for Financial Studies, vol. 22(5), pages 1915-1953, May.
    3. Francisco J. Gomes & Laurence J. Kotlikoff & Luis M. Viceira, 2008. "Optimal Life-Cycle Investing with Flexible Labor Supply: A Welfare Analysis of Life-Cycle Funds," American Economic Review, American Economic Association, vol. 98(2), pages 297-303, May.
    4. Cairns, Andrew J.G. & Blake, David & Dowd, Kevin, 2006. "Stochastic lifestyling: Optimal dynamic asset allocation for defined contribution pension plans," Journal of Economic Dynamics and Control, Elsevier, vol. 30(5), pages 843-877, May.
    5. 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.
    6. repec:dgr:rugsom:07005 is not listed on IDEAS
    7. Giorgio Consigli & Massimo di Tria & Michele Gaffo & Gaetano Iaquinta & Vittorio Moriggia & Angelo Uristani, 2011. "Dynamic Portfolio Management for Property and Casualty Insurance," International Series in Operations Research & Management Science, in: Marida Bertocchi & Giorgio Consigli & Michael A. H. Dempster (ed.), Stochastic Optimization Methods in Finance and Energy, edition 1, chapter 0, pages 99-124, Springer.
    8. Richard, Scott F., 1975. "Optimal consumption, portfolio and life insurance rules for an uncertain lived individual in a continuous time model," Journal of Financial Economics, Elsevier, vol. 2(2), pages 187-203, June.
    9. E. A. Medova & J. K. Murphy & A. P. Owen & K. Rehman, 2008. "Individual asset liability management," Quantitative Finance, Taylor & Francis Journals, vol. 8(6), pages 547-560.
    10. Kouwenberg, Roy, 2001. "Scenario generation and stochastic programming models for asset liability management," European Journal of Operational Research, Elsevier, vol. 134(2), pages 279-292, October.
    11. Consiglio, Andrea & Tumminello, Michele & Zenios, Stavros A., 2015. "Desinging Guarantee Options in Defined Contributions Pension Plans," Working Papers 15-03, University of Pennsylvania, Wharton School, Weiss Center.
    12. Andrea Consiglio & Flavio Cocco & Stavros Zenios, 2007. "Scenario optimization asset and liability modelling for individual investors," Annals of Operations Research, Springer, vol. 152(1), pages 167-191, July.
    13. Andrea Consiglio & Flavio Cocco & Stavros A. Zenios, 2004. "www.Personal_Asset_Allocation," Interfaces, INFORMS, vol. 34(4), pages 287-302, August.
    14. Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
    15. Streutker, Matthijs & van der Vlerk, Maarten & Klein Haneveld, Wim, 2007. "Implementation of new regulatory rules in a multistage ALM model for Dutch pension funds," Research Report 07005, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    16. John M. Mulvey & Koray D. Simsek & Zhuojuan Zhang & Frank J. Fabozzi & William R. Pauling, 2008. "OR PRACTICE---Assisting Defined-Benefit Pension Plans," Operations Research, INFORMS, vol. 56(5), pages 1066-1078, October.
    17. Alois Geyer & William T. Ziemba, 2008. "The Innovest Austrian Pension Fund Financial Planning Model InnoALM," Operations Research, INFORMS, vol. 56(4), pages 797-810, August.
    18. Jitka Dupačová & Marida Bertocchi & Vittorio Moriggia, 2009. "Testing the structure of multistage stochastic programs," Computational Management Science, Springer, vol. 6(2), pages 161-185, May.
    19. Consiglio, Andrea & Tumminello, Michele & Zenios, Stavros A., 2015. "Designing and pricing guarantee options in defined contribution pension plans," Insurance: Mathematics and Economics, Elsevier, vol. 65(C), pages 267-279.
    20. David R. Cariño & Terry Kent & David H. Myers & Celine Stacy & Mike Sylvanus & Andrew L. Turner & Kouji Watanabe & William T. Ziemba, 1994. "The Russell-Yasuda Kasai Model: An Asset/Liability Model for a Japanese Insurance Company Using Multistage Stochastic Programming," Interfaces, INFORMS, vol. 24(1), pages 29-49, February.
    21. G. Consigli & M. Dempster, 1998. "Dynamic stochastic programmingfor asset-liability management," Annals of Operations Research, Springer, vol. 81(0), pages 131-162, June.
    22. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-257, August.
    23. Hoyland, Kjetil & Wallace, Stein W., 2001. "Analyzing legal regulations in the Norwegian life insurance business using a multistage asset-liability management model," European Journal of Operational Research, Elsevier, vol. 134(2), pages 293-308, October.
    24. John M Mulvey & Koray D Simsek & Zhuojuan Zhang, 2006. "Improving investment performance for pension plans," Journal of Asset Management, Palgrave Macmillan, vol. 7(2), pages 93-108, July.
    25. John M. Mulvey & Cenk Ural & Zhuojuan Zhang, 2007. "Improving performance for long-term investors: wide diversification, leverage, and overlay strategies," Quantitative Finance, Taylor & Francis Journals, vol. 7(2), pages 175-187.
    26. Soňa Kilianová & Georg Pflug, 2009. "Optimal pension fund management under multi-period risk minimization," Annals of Operations Research, Springer, vol. 166(1), pages 261-270, February.
    27. Abaffy, J. & Bertocchi, M. & Dupacova, J. & Moriggia, V. & Consigli, G., 2007. "Pricing nondiversifiable credit risk in the corporate Eurobond market," Journal of Banking & Finance, Elsevier, vol. 31(8), pages 2233-2263, August.
    28. Rockafellar, R. Tyrrell & Uryasev, Stanislav, 2002. "Conditional value-at-risk for general loss distributions," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1443-1471, July.
    29. Lans Bovenberg & Thijs Knaap, 2005. "Ageing, Funded Pensions and the Dutch Economy," CESifo Working Paper Series 1403, CESifo.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Giorgio Consigli & Vittorio Moriggia & Sebastiano Vitali, 2020. "Long-term individual financial planning under stochastic dominance constraints," Annals of Operations Research, Springer, vol. 292(2), pages 973-1000, September.
    2. Miloš Kopa & Tomáš Rusý, 2021. "A decision-dependent randomness stochastic program for asset–liability management model with a pricing decision," Annals of Operations Research, Springer, vol. 299(1), pages 241-271, April.
    3. 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.
    4. Milos Kopa & Kristina Sutiene & Audrius Kabasinskas & Ausrine Lakstutiene & Aidas Malakauskas, 2022. "Dominance Tracking Index for Measuring Pension Fund Performance with Respect to the Benchmark," Sustainability, MDPI, vol. 14(15), pages 1-28, August.
    5. Markéta Horejšová & Sebastiano Vitali & Miloš Kopa & Vittorio Moriggia, 2020. "Evaluation of scenario reduction algorithms with nested distance," Computational Management Science, Springer, vol. 17(2), pages 241-275, June.
    6. Sebastiano Vitali & Vittorio Moriggia, 2021. "Pension fund management with investment certificates and stochastic dominance," Annals of Operations Research, Springer, vol. 299(1), pages 273-292, April.
    7. Sebastiano Vitali & Ruth Domínguez & Vittorio Moriggia, 2021. "Comparing stage-scenario with nodal formulation for multistage stochastic problems," 4OR, Springer, vol. 19(4), pages 613-631, December.
    8. Moriggia, Vittorio & Kopa, Miloš & Vitali, Sebastiano, 2019. "Pension fund management with hedging derivatives, stochastic dominance and nodal contamination," Omega, Elsevier, vol. 87(C), pages 127-141.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Miloš Kopa & Vittorio Moriggia & Sebastiano Vitali, 2018. "Individual optimal pension allocation under stochastic dominance constraints," Annals of Operations Research, Springer, vol. 260(1), pages 255-291, January.
    2. Moriggia, Vittorio & Kopa, Miloš & Vitali, Sebastiano, 2019. "Pension fund management with hedging derivatives, stochastic dominance and nodal contamination," Omega, Elsevier, vol. 87(C), pages 127-141.
    3. Sebastiano Vitali & Vittorio Moriggia, 2021. "Pension fund management with investment certificates and stochastic dominance," Annals of Operations Research, Springer, vol. 299(1), pages 273-292, April.
    4. 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.
    5. Ferstl, Robert & Weissensteiner, Alex, 2011. "Asset-liability management under time-varying investment opportunities," Journal of Banking & Finance, Elsevier, vol. 35(1), pages 182-192, January.
    6. Chul Jang & Andrew Clare & Iqbal Owadally, 2024. "Liability-driven investment for pension funds: stochastic optimization with real assets," Risk Management, Palgrave Macmillan, vol. 26(3), pages 1-32, September.
    7. Yuichi Takano & Jun-ya Gotoh, 2011. "Constant Rebalanced Portfolio Optimization Under Nonlinear Transaction Costs," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 18(2), pages 191-211, May.
    8. Das, Sanjiv R. & Ostrov, Daniel & Radhakrishnan, Anand & Srivastav, Deep, 2022. "Dynamic optimization for multi-goals wealth management," Journal of Banking & Finance, Elsevier, vol. 140(C).
    9. Costanza Torricelli, 2009. "Models For Household Portfolios And Life-Cycle Allocations In The Presence Of Labour Income And Longevity Risk," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 0017, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    10. Sebastiano Vitali & Ruth Domínguez & Vittorio Moriggia, 2021. "Comparing stage-scenario with nodal formulation for multistage stochastic problems," 4OR, Springer, vol. 19(4), pages 613-631, December.
    11. Hong‐Chih Huang, 2010. "Optimal Multiperiod Asset Allocation: Matching Assets to Liabilities in a Discrete Model," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(2), pages 451-472, June.
    12. Stamos, Michael Z., 2008. "Optimal consumption and portfolio choice for pooled annuity funds," Insurance: Mathematics and Economics, Elsevier, vol. 43(1), pages 56-68, August.
    13. Agnieszka Karolina Konicz & David Pisinger & Alex Weissensteiner, 2016. "Optimal retirement planning with a focus on single and joint life annuities," Quantitative Finance, Taylor & Francis Journals, vol. 16(2), pages 275-295, February.
    14. Davi Valladão & Thuener Silva & Marcus Poggi, 2019. "Time-consistent risk-constrained dynamic portfolio optimization with transactional costs and time-dependent returns," Annals of Operations Research, Springer, vol. 282(1), pages 379-405, November.
    15. Blake, David & Wright, Douglas & Zhang, Yumeng, 2014. "Age-dependent investing: Optimal funding and investment strategies in defined contribution pension plans when members are rational life cycle financial planners," Journal of Economic Dynamics and Control, Elsevier, vol. 38(C), pages 105-124.
    16. Alaeddine Faleh, 2011. "Un modèle de programmation stochastique pour l'allocation stratégique d'actifs d'un régime de retraite partiellement provisionné," Working Papers hal-00561965, HAL.
    17. 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.
    18. 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.
    19. Pliska, Stanley R. & Ye, Jinchun, 2007. "Optimal life insurance purchase and consumption/investment under uncertain lifetime," Journal of Banking & Finance, Elsevier, vol. 31(5), pages 1307-1319, May.
    20. Jang Ho Kim & Yongjae Lee & Woo Chang Kim & Frank J. Fabozzi, 2022. "Goal-based investing based on multi-stage robust portfolio optimization," Annals of Operations Research, Springer, vol. 313(2), pages 1141-1158, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:comgts:v:14:y:2017:i:1:d:10.1007_s10287-016-0263-4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.