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Asset liability management for the Bank of Uganda defined benefits scheme by stochastic programming

Mukalazi Herbert, Larsson Torbjörn, Kasozi Juma, Mayambala Fred

Operations Research and Decisions

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2022

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Vol. 32, No. 2

105--124

EN

We develop a model for asset liability management of pension funds, which is solved by stochastic programming techniques. Using data provided by the Bank of Uganda Defined Benefits Scheme, which is closed to new members, we obtain the optimal investment policies. Randomly sampled scenario trees using the mean and covariance structure of the return distribution are used for generating the coefficients of the stochastic program. Liabilities are modelled by remaining years of life expectancy and guaranteed period for monthly pension. We obtain the funding situation of the scheme at each stage, and the terminal cash injection by the sponsor required to meet all future benefit payments, in absence of contributing members.

2

Portfolio immunization under cone restrictions

Gajek L., Krajewska E.

Journal of Applied Analysis

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2017

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Vol. 23, nr 2

127--135

EN

Interest rate risk for portfolios with random cash flows is mitigated via minimizing its L2-measure. A link between monotonicity of linear operators and immunization under cone restrictions is examined. The results are based on the Hilbert space methods applied to incomplete markets.

3

Bank asset liability management programming techniques: an overview

Kosmidou K., Zopounidis C.

Foundations of Computing and Decision Sciences

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2004

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Vol. 29, No. 3

193-204

EN

Nowadays, because of the uncertainty and risk which exists due to the integrating financial market and technological innovations, investors often wonder how to invest their assets over time to achieve satisfactory returns subject to uncertainties, various constraints and liability commitments. They speculate how to develop long term strategies to hedge the uncertainties and how to eventually combine investment decisions of asset and liability in order to maximize their wealth. This paper makes a brief overview of the bank asset liability management techniques that have been developed and used over the last 20 years. It includes models for individuals, as well as for various financial institutions which seek out greater efficiency in the management of their assets and liabilities.

4

Dynamic asset allocation under uncertainty for pension fund management

Pflug G., Świętanowski A.

Control and Cybernetics

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1999

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Vol. 28, no 4

755-777

EN

Decision making in managing the asset and liability structure of a pension fund can be supported by stochastic dynamic optimization. We discuss our model, which is based on data analysis and forecast for the asset-side as well as a simulation model for the liability side. The core of our decision support system consists of the following building blocks : a set of securities, a pricing module based on a multifactor Markov model to derive expected returns of securities, a simulation-based model for liabilities, a carefully chosen objective function suitable for the pension fund and a stochastic optimization problem solver. We consider the use of different objectives in the model and decomposition techniques to solve the stochastic portfolio optimization problem. Our final goal is to design an efficient parallel implementation.