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Rebalancing Strategies for Long-Term Investors

  • John M. Mulvey
  • Koray D. Simsek
Chapter
Part of the Applied Optimization book series (APOP, volume 74)

Abstract

Leading pension plans employ asset and liability management systems for optimizing their strategic decisions. The multi-stage models link asset allocation decisions with payments to beneficiaries, changes to plan policies and related issues, in order to maximize the plan’s surplus within a given risk tolerance. Temporal aspects complicate the problem but give rise to special opportunities for dynamic investment strategies. Within these models, the portfolio must be re-revised in the face of transaction and market impact costs. The re-balancing problem is posed as a generalized network with side conditions. We develop a specialized algorithm for solving the resulting problem. A real-world pension example illustrates the concepts.

Keywords

Asset and liability management financial optimization multi-stage investment models 

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Copyright information

© Springer Science+Business Media Dordrecht 2002

Authors and Affiliations

  • John M. Mulvey
    • 1
  • Koray D. Simsek
    • 2
  1. 1.Department of Operations Research and Financial Engineering Bendheim Center for FinancePrinceton UniversityPrincetonUSA
  2. 2.Department of Operations Research and Financial EngineeringPrinceton UniversityPrincetonUSA

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