Annals of Operations Research

, Volume 205, Issue 1, pp 55–76

Financial planning for young households

  • Anne Marie B. Pedersen
  • Alex Weissensteiner
  • Rolf Poulsen
Article

DOI: 10.1007/s10479-012-1205-3

Cite this article as:
Pedersen, A.M.B., Weissensteiner, A. & Poulsen, R. Ann Oper Res (2013) 205: 55. doi:10.1007/s10479-012-1205-3

Abstract

We analyze the financial planning problems of young households whose main decisions are how to finance the purchase of a house (liabilities) and how to allocate investments in pension savings schemes (assets). The problems are solved using a multi-stage stochastic programming model where the uncertainty is described by a scenario tree generated from a vector auto-regressive process for equity returns and interest rate evolution. We find strong evidence of the importance of taking into account the multi-stage nature of the problem, as well as the need to consider the asset and liability sides jointly.

Keywords

Asset-liability managementMortgagePensionMulti-stage stochastic programmingScenario treeVector auto-regression

Copyright information

© Springer Science+Business Media, LLC 2012

Authors and Affiliations

  • Anne Marie B. Pedersen
    • 1
  • Alex Weissensteiner
    • 2
  • Rolf Poulsen
    • 3
  1. 1.Nykredit Realkredit A/SCopenhagenDenmark
  2. 2.Free University of Bozen-BolzanoBolzanoItaly
  3. 3.University of CopenhagenCopenhagenDenmark