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Rebalancing Strategies for Long-Term Investors
Leading pension plans use asset and liability management systems to optimizise their strategic decisions.
Author(s) :
Department of Operations Research and Financial EngineeringBendheim Center for Finance, Princeton University
Associate Professor of Finance, EDHEC Business SchoolResearch Associate, EDHEC-Risk Institute
Presentation :
The multi-stage models link asset allocation decisions with payments to beneficiaries, changes to plan policies and related issues, 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 rebalancing 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.| Type : | Working paper |
|---|---|
| Date : | le 11/04/2007 |
| Extra information : | For more information, please contact Joanne Finlay, EDHEC Research and Development Department [ joanne.finlay@edhec.edu ] The contents of this paper do not necessarily reflect the opinions of EDHEC Business School. |
| Research Cluster : | Finance |
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Operating from campuses in Lille, Nice, Paris, London and Singapore, EDHEC is one of the world’s top 20 business schools. Fully international and directly connected to the business world, EDHEC is a school for business, rather than a business school, where excellence in teaching and research focuses on innovation to stimulate entrepreneurship and creativity. For business from birth and dedicated to business, EDHEC makes entrepreneurs for life, able to remodel or create successful businesses wherever they work.
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