Financial planning for young households

Anne Pedersen (), Alex Weissensteiner () and Rolf Poulsen ()

Annals of Operations Research, 2013, vol. 205, issue 1, 55-76

Abstract: We analyze the financial planning problems of young households whose main decisions are how to finance the purchase of a house (liabilities) and how to allocate investments in pension savings schemes (assets). The problems are solved using a multi-stage stochastic programming model where the uncertainty is described by a scenario tree generated from a vector auto-regressive process for equity returns and interest rate evolution. We find strong evidence of the importance of taking into account the multi-stage nature of the problem, as well as the need to consider the asset and liability sides jointly. Copyright Springer Science+Business Media, LLC 2013

Keywords: Asset-liability management; Mortgage; Pension; Multi-stage stochastic programming; Scenario tree; Vector auto-regression (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1007/s10479-012-1205-3

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