OR PRACTICE---Assisting Defined-Benefit Pension Plans

John M. Mulvey (), Koray D. Simsek (), Zhuojuan Zhang (), Frank Fabozzi () and William R. Pauling ()
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John M. Mulvey: Department of Operations Research and Financial Engineering, Bendheim Center for Finance, Princeton University, Princeton, New Jersey 08544
Koray D. Simsek: Faculty of Management, Sabanci University, Orhanli, 34956 Tuzla, Istanbul, Turkey
Zhuojuan Zhang: BlackRock Financial Management Inc., New York, New York 10055
William R. Pauling: Hartford Investment Management, Hartford, Connecticut 06105

Operations Research, 2008, vol. 56, issue 5, 1066-1078

Abstract: The defined-benefit pension system poses substantial, long-term risks for the U.S. economy. We describe a flexible asset-liability management (ALM) system for pension planning. The primary goals are to improve the performance and survivability of the pension trust. We first employ a stochastic program for enhancing investment strategies in light of company and other goals and pension risk constraints. The results are linked with a policy simulator for further analysis. We illustrate the concepts via two disparate real-world companies. The first is a slowly growing auto company, and the second a profitable pharmaceutical enterprise. We show that a stochastic program can help in the process of discovering sound policy rules. The ALM system has been employed extensively throughout the world by a large global actuarial firm.

Keywords: finance; corporate; portfolio; programming; stochastic; simulation; applications; decision analysis; multiple criteria; risk (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (9)

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