Author : Roslan Jaafar 1
Date of Publication :16th May 2018
Abstract: This study aims to analyze the strategic asset allocation and matching assets/liability problem in Malaysia’s defined contribution (DC) pension scheme-Employees Provident Fund (EPF). Stochastic asset liability management (ALM) model is employed to solve the asset allocation decision where assets and liabilities are considered simultaneously in the decision strategy. We then extend the analysis by incorporating integrated chance constraints (ICC) to minimize the event of underfunding along the planning horizon. The results show that, in respect to asset holding constraints, the EPF tends to hold government security in their asset allocation strategy. Moreover, the ICC risk constraint limits the ability of fund to maximize the expected terminal wealth and tends to reduce the gains of our ALM model
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