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ON INTEGRATED CHANCE CONSTRAINTS IN ALM FOR PENSION FUNDS

Published online by Cambridge University Press:  19 February 2018

Youssouf A. F. Toukourou  and
François Dufresne
Youssouf A. F. Toukourou*
Affiliation:
Department of Actuarial Science, Faculty of Business and Economics, University of Lausanne UNIL-Dorigny, CH-1015 Lausanne, Switzerland
François Dufresne
Affiliation:
Department of Actuarial Science, Faculty of Business and Economics, University of Lausanne UNIL-Dorigny, CH-1015 Lausanne, Switzerland
*
E-Mail: [email protected]
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Abstract

We discuss the role of integrated chance constraints (ICC) as quantitative risk constraints in asset and liability management (ALM) for pension funds. We define two types of ICC: the one period integrated chance constraint (OICC) and the multiperiod integrated chance constraint (MICC). As their names suggest, the OICC covers only one period, whereas several periods are taken into account with the MICC. A multistage stochastic linear programming model is therefore developed for this purpose and a special mention is paid to the modeling of the MICC. Based on a numerical example, we first analyze the effects of the OICC and the MICC on the optimal decisions (asset allocation and contribution rate) of a pension fund. By definition, the MICC is more restrictive and safer compared to the OICC. Second, we quantify this MICC safety increase. The results show that although the optimal decisions from the OICC and the MICC differ, the total costs are very close, showing that the MICC is definitely a better approach since it is more prudent.

Keywords

Pension fundsmodelingasset liability managementmultistage stochastic programminglinear programmingintegrated chance constraint
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 48 , Issue 2 , May 2018 , pp. 571 - 609
Copyright
Copyright © Astin Bulletin 2018 

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