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A stochastic programming model for asset liability management of a Finnish pension company

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Abstract

This paper describes a stochastic programming model that was developed for asset liability management of a Finnish pension insurance company. In many respects the model resembles those presented in the literature, but it has some unique features stemming from the statutory restrictions for Finnish pension insurance companies. Particular attention is paid to modeling the stochastic factors, numerical solution of the resulting optimization problem and evaluation of the solution. Out-of-sample tests clearly favor the strategies suggested by our model over static fixed-mix and dynamic portfolio insurance strategies.

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Authors and Affiliations

  1. Department of Business Technology, Helsinki School of Economics, PL 1210, 00101, Helsinki, Finland

    Petri Hilli & Teemu Pennanen

  2. Risk Management Division, European Central Bank, D-60311, Frankfurt am Main, Germany

    Matti Koivu

  3. Actuarial Department, Ilmarinen Mutual Pension Insurance Company, Helsinki, Finland

    Antero Ranne

Authors
  1. Petri Hilli
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  2. Matti Koivu
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  3. Teemu Pennanen
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  4. Antero Ranne
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Corresponding author

Correspondence to Teemu Pennanen.

Additional information

Financial support from the Foundation for the Helsinki School of Economics under grants number 9981114 and 9981117 for P. Hilli and M. Koivu is gratefully acknowledged.

The work of T. Pennanen was supported by Finnish Academy under contract no. 3385

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Hilli, P., Koivu, M., Pennanen, T. et al. A stochastic programming model for asset liability management of a Finnish pension company. Ann Oper Res 152, 115–139 (2007). https://doi.org/10.1007/s10479-006-0135-3

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  • DOI: https://doi.org/10.1007/s10479-006-0135-3

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