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Multistage Financial Planning Models: Integrating Stochastic Programs and Policy Simulators

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Stochastic Programming

Part of the book series: International Series in Operations Research & Management Science ((ISOR,volume 150))

Abstract

This chapter reviews multistage financial planning models, with a focus on practical approaches for optimizing investors´ performance over time. We discuss two major frameworks for constructing financial planning models: (1) policy rule simulation and optimization and (2) multistage stochastic programming. We advocate an integrated approach, in which a stylized stochastic program helps the investor discover robust decision/policy rules. In the second stage, the policy optimizer compares policy rules as well as provides additional information about future investment performance. To illustrate benefits, we apply the dual strategy to the defined benefit pension plans in the USA

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Notes

  1. 1.

    The advantages of the equal weighted S&P 500 index is partially due to rebalancing gains and partially due to the higher performance of midsize companies over the discussed period.

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Author information

Authors and Affiliations

  1. Department of Operations Research and Financial Engineering, Princeton University, Princeton, NJ, 08544, USA

    John M. Mulvey

  2. Department of Industrial and Systems Engineering, Korea Advanced Institute of Science and Technology, Daejeon, South Korea

    Woo Chang Kim

Authors
  1. John M. Mulvey
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  2. Woo Chang Kim
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Corresponding author

Correspondence to John M. Mulvey .

Editor information

Editors and Affiliations

  1. Dept. Management Science & Engineering, Stanford University, Stanford, 94305, California, USA

    Gerd Infanger

Appendix

Appendix

Fig. 12.7
figure 7

Performance of dynamic diversification portfolio. Dynamic diversification portfolio is an equally weighted fixed mix portfolio of 30 momentum strategies—five regions, six settings. Each number next to a point on the line represents leverage; 3-month US T-bill is used. The sample period is 1980 through 2006

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Mulvey, J.M., Kim, W.C. (2010). Multistage Financial Planning Models: Integrating Stochastic Programs and Policy Simulators. In: Infanger, G. (eds) Stochastic Programming. International Series in Operations Research & Management Science, vol 150. Springer, New York, NY. https://doi.org/10.1007/978-1-4419-1642-6_12

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