RT Journal Article
SR Electronic
T1 A Factor- and Goal-Driven Model for Defined Benefit Pensions: <em>Setting Realistic Benefits</em>
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 165
OP 177
DO 10.3905/jpm.2019.45.3.165
VO 45
IS 3
A1 John M. Mulvey
A1 Lionel Martellini
A1 Han Hao
A1 Nongchao Li
YR 2019
UL https://pm-research.com/content/45/3/165.abstract
AB A factor and goal-driven framework for assessing asset allocation and contribution decisions within defined-benefit pension plans is developed in this article. A critical element is setting future benefits with reference to the ability of the pension sponsors to support liabilities under reasonable investment expectations. The approach suggested by the authors combines a micro study of a representative cohort of individuals with an aggregation across a target population to estimate consistency between the micro and macro environments. A stochastic inflation risk factor affects both contribution and spending cash flows. This agent-based model suggested by the authors provides a more realistic framework than traditional approaches for setting pension benefits.TOPICS: Factor-based models, pension funds, futures and forward contracts