Policy inprovement via inverse ALM

Traditional ALM first sets the policy parameters and then assesses the impact on some sub-set of risk and return measures. We propose a method to ‘invert’ the traditional ALM approach: first formulate the desired level of risk and return measures and then systematically search through the policy space to find the policy that ‘best’ meets the objectives and constraints. The method is more ‘open minded’ than traditional ALM as is shown in a numerical example using an ALM model for a stylized pension fund.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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