Optimal pension fund composition for an Italian private pension plan sponsor

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.

Multistage multivariate nested distance: An empirical analysis

“…To produce results about the sensitivity of the solution distance with respect to the tree distance, we propose three portfolio models very well known in the literature that discusses stochastic optimization applied to financial problems, see e. g. [2,5,6,19]. The three models are: the maximization of the average value-at-risk (AV@R), the maximization of the expected wealth and the minimization of the difference between the expected wealth and its AV@R. In particular, the third model has recently been studied in [6] and [4].…”

“…When the stochastic random variable and the optimal decision evolve along a sequence of temporal stages, the framework becomes a multistage stochastic optimization, see [17]. Financial problems require models that very well interface with multistage stochastic optimization because they typically need to find an optimal portfolio allocation in financial assets whose future return is uncertain, see [2,3,5,6,19]. Therefore, the implementation of a multistage stochastic model follows the characterization of the stochastic environment in which the problem is defined.…”

Evaluation of scenario reduction algorithms with nested distance

“…Moreover, it is well known that multistage stochastic optimization is particularly helpful for addressing portfolio management problems, see Dupačová et al (2002) for an overview of the topic and the recent applications of Vitali et al (2017), Kopa and Petrová (2017), Consigli et al (2018a), Kopa et al (2018), Moriggia et al (2019) and references therein. For this reason, we also formulate and solve a multistage portfolio selection problem.…”

An asset -- liability management stochastic program of a leasing company

“…Important aspect of the modelling exercise is to focus on accuracy of the model formulation and capturing all the details associated with the investigated problem. [37] and [27] have paid a lot of attention to this part, as they aimed to cover all possibilities, how an insurance company could invest. They also focused on the credibility of cash-flow dynamic in the company and to the scenario generation procedure.…”