Research and publications
Measuring The Benefits Of Dynamic Asset Allocation Strategies In The Presence Of Liability Constraints
The recent pension crisis has triggered a fierce debate in most developed countries between advocates of a tighter regulation designed to provide explicit incentives for pension funds to increase t ...
Author(s):
Lionel Martellini, Vincent Milhau
Summary:
The recent pension crisis has triggered a fierce debate in most developed countries between advocates of a tighter regulation designed to provide explicit incentives for pension funds to increase their focus on risk management, and those arguing that imposing short-term funding constraints and solvency requirements on such long-term investors would only increase the cost of pension financing. We analyse this question in the context of a formal continuous-time dynamic asset allocation model for an investor facing liability commitments subject to inflation and interest rate risks. In an empirical exercise, we find that the presence of short-term funding ratio constraints indeed involves a positive welfare cost, but that cost is not found to be prohibitive for reasonable parameter values.
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Register/Log in| Type : | EDHEC Publication |
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| Date : | 24/04/2009 |
| Keywords : |
Asset-Liability Management |
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