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Performance Enhancements for Defined Benefit Pension Plans

In: Stochastic Optimization Methods in Finance and Energy

Author

Listed:
  • John M. Mulvey

    (Princeton University)

  • Thomas Bauerfeind

    (PROTINUS Beratungsgesellschaft mbH & Co. KG)

  • Koray D. Simsek

    (Sabanci University)

  • Mehmet T. Vural

    (Princeton University)

Abstract

Over the next several decades, traditional corporate and government pension plans will encounter increasingly severe problems in many countries. Contributing factors include underfunding status, demographic trends, low savings rates, and inefficient investment/saving strategies. This chapter takes up the last point, showing that a systematic forward-looking asset–liability management model can improve performance across many reward and risk measures. The model takes the form of a multi-stage stochastic program. We approximate the stochastic program via a set of state-dependent policy rules. A duration-enhancing overlay rule improves performance during economic contractions. The methodology is evaluated via historical backtests and a highly flexible, forward-looking financial planning tool.

Suggested Citation

  • John M. Mulvey & Thomas Bauerfeind & Koray D. Simsek & Mehmet T. Vural, 2011. "Performance Enhancements for Defined Benefit Pension Plans," 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 43-71, Springer.
    • Handle: RePEc:spr:isochp:978-1-4419-9586-5_3
    DOI: 10.1007/978-1-4419-9586-5_3
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    Cited by:

    1. Barbara Glensk & Reinhard Madlener, 2013. "Multi-period portfolio optimization of power generation assets," Operations Research and Decisions, Wroclaw University of Science and Technology, Faculty of Management, vol. 23(4), pages 20-38.

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