Optimal Long-Term Allocation for a Defined-Contributions Pension Fund
| Title: | Optimal Long-Term Allocation for a Defined-Contributions Pension Fund |
|---|---|
| Authors: | Eric Jondeaua; Michael Rockingerb; Jel Classification E |
| Contributors: | The Pennsylvania State University CiteSeerX Archives |
| Source: | http://www.solvay.edu/sites/upload/files/CEB/CEB_RSAEM/2014_2015/Michael_Rockinger_paper.pdf. |
| Publication Year: | 2014 |
| Collection: | CiteSeerX |
| Subject Terms: | Asset Liability Management; Defined Contributions; Switzerland; Dis- counting; Markov Model; Surplus maximization |
| Description: | We build a macroeconomic model for Switzerland, the Euro Area, and the USA, which drives the dynamics of several asset classes and the liabilities of a repre-sentative Swiss (defined-contributions) pension fund. This encompassing approach allows us to generate correlations between returns on assets and liabilities. We calibrate the economy using quarterly data between 1985:Q1 and 2013:Q2. Using a certainty equivalent approach, we show that a liabilities-hedging portfolio outper-forms an assets-only strategy by between 5 and 15 % per year. The main reason for such a large improvement is that the optimal assets-only portfolio is typically long in cash, whereas hedging liabilities require the pension fund to be short in cash. It follows that imposing positivity restrictions in the construction of the portfolio also results in a large cost, between 4 and 8 % per year. This estimate suggests that al-lowing pension funds to hedge their liabilities through borrowing cash and investing in a diversified bond portfolio would help enhancing global portfolio return. |
| Document Type: | text |
| File Description: | application/pdf |
| Language: | English |
| Relation: | http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.671.9367; http://www.solvay.edu/sites/upload/files/CEB/CEB_RSAEM/2014_2015/Michael_Rockinger_paper.pdf |
| Availability: | http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.671.9367; http://www.solvay.edu/sites/upload/files/CEB/CEB_RSAEM/2014_2015/Michael_Rockinger_paper.pdf |
| Rights: | Metadata may be used without restrictions as long as the oai identifier remains attached to it. |
| Accession Number: | edsbas.D0A0CFBC |
| Database: | BASE |