Regime Switching based Portfolio Selection for Pension Funds
Journal
Journal of Banking and Finance
ISSN
0378-4266
ISSN-Digital
1872-6372
Type
journal article
Date Issued
2007-08-01
Author(s)
Abstract
This paper shows how a mean variance criterion can be applied to a multi period setting in order to obtain efficient portfolios in an asset and liability context. The optimization model allows for rebalancing activities, transaction costs, stochastic volatilities for both assets and liabilities. Furthermore, a general framework for the projection of pension fund liabilities as well as for the generation of asset returns is given. In a further step the dynamics of the liability maturity structure is modeled as customized index, whose volatility and correlation with asset returns become integral components of the applied regime switching approach. The numerical results illustrate the diversification of the assets and its risk return pattern in dependency of the liability dynamics.
Language
English
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Elsevier
Publisher place
Amsterdam
Volume
31
Number
8
Start page
2265
End page
2280
Pages
16
Subject(s)
Division(s)
Eprints ID
44410
File(s)![Thumbnail Image]()
Name
RegimeSwitching.pdf
Size
254.31 KB
Format
Adobe PDF
Checksum (MD5)
ba578907345bec17dd580093b4e34874