Journal of Mathematical Finance
Volume 3, Issue 3 (August 2013)
ISSN Print: 2162-2434 ISSN Online: 2162-2442
Google-based Impact Factor: 0.87 Citations h5-index & Ranking
A Liability Tracking Approach to Long Term Management of Pension Funds ()
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ABSTRACT
We propose a long term portfolio management method which takes into account a liability. Our approach is based on the LQG (Linear, Quadratic cost, Gaussian) control problem framework and then the optimal portfolio strategy hedges the liability by directly tracking a benchmark process which represents the liability. Two numerical results using empirical data published by Japanese organizations are served: simulations tracking an artificial liability and an estimated liability of Japanese organization. The latter one demonstrates that our optimal portfolio strategy can hedge his or her liability.
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