A study of asset and liability management applied to Brazilian pension funds

Wilton Bernardino, Rodrigo Falcão, , João, Raydonal Ospina, Filipe Costa de Souza and José Jonas Alves Correia

European Journal of Operational Research, 2025, vol. 322, issue 3, 1059-1076

Abstract: Asset and Liability Management (ALM) is a critical framework for pension funds, ensuring they have sufficient assets to meet future liabilities (pension payments) while managing investment risks effectively. This paper utilizes Brazilian data to develop an ALM model specifically for pension funds in the country. The model employs an optimization strategy that minimizes expected contributions made by individuals throughout their working lives. This optimization adheres to cash flow limitations and regulatory restrictions. The objective function leverages a min–max robust optimization approach based on a three-scenario planning scheme inspired by Brazil’s Interbank Rate. We incorporate a machine learning approach based on CMARS to predict confidence intervals for the key stochastic model parameters, particularly those related to the real returns of Brazilian investment classes. The findings empower pension fund managers to formulate well-informed investment strategies. We highlight allocation strategies that can reduce contribution rates without jeopardizing fund solvency, even for managers with a more aggressive risk profile favoring higher stock market allocations. Additionally, the study is enriched by an empirical analysis using data from a Brazilian pension fund, demonstrating the model’s practical application. In short, this model offers valuable insights that can benefit a wide range of pension funds in the Brazilian market, and it could also be applied to similar situations globally.

Keywords: Asset liability management; Robust optimization; Pension funds; Brazilian economy; Social security (search for similar items in EconPapers)
JEL-codes: C61 G11 H75 J32 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221724008816
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:322:y:2025:i:3:p:1059-1076

DOI: 10.1016/j.ejor.2024.11.016

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().