TITLE:
A Liability Tracking Approach to Long Term Management of Pension Funds
AUTHORS:
Masashi Ieda, Takashi Yamashita, Yumiharu Nakano
KEYWORDS:
Pension Fund Management; Long Term Portfolio Optimization; Quadratic Hedging; Stochastic Optimal Control; Hamilton-Jacobi-Bellman Equations; LQG Control
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.3 No.3,
August
22,
2013
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.