Chance-constrained optimization for pension fund portfolios in the presence of default risk

In this paper, we consider the portfolio optimization problem for a pension fund consisting of various government and corporate bonds. The aim of the problem is to maximize the fund's cash position at the end of the time horizon, while allowing for the possibility of bond defaults. We model thi...

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Main Authors:	Sun, Y., Aw, E., Loxton, R., Teo, Kok Lay
Format:	Journal Article
Published:	Elsevier BV * North-Holland 2016
Online Access:	http://hdl.handle.net/20.500.11937/5038

id	curtin-20.500.11937-5038
recordtype	eprints
spelling	curtin-20.500.11937-50382018-07-02T00:35:39Z Chance-constrained optimization for pension fund portfolios in the presence of default risk Sun, Y. Aw, E. Loxton, R. Teo, Kok Lay In this paper, we consider the portfolio optimization problem for a pension fund consisting of various government and corporate bonds. The aim of the problem is to maximize the fund's cash position at the end of the time horizon, while allowing for the possibility of bond defaults. We model this problem as a stochastic discrete-time optimal control problem with a chance constraint that ensures all future outgoing commitments can be met with sufficiently high probability. We then introduce a corresponding deterministic formulation that is a conservative approximation of the original stochastic optimal control problem. This approximate problem can be solved using gradient-based optimization techniques. We conclude the paper with a simulation study. 2016 Journal Article http://hdl.handle.net/20.500.11937/5038 10.1016/j.ejor.2016.06.019 Elsevier BV * North-Holland fulltext
repository_type	Digital Repository
institution_category	Local University
institution	Curtin University Malaysia
building	Curtin Institutional Repository
collection	Online Access
description	In this paper, we consider the portfolio optimization problem for a pension fund consisting of various government and corporate bonds. The aim of the problem is to maximize the fund's cash position at the end of the time horizon, while allowing for the possibility of bond defaults. We model this problem as a stochastic discrete-time optimal control problem with a chance constraint that ensures all future outgoing commitments can be met with sufficiently high probability. We then introduce a corresponding deterministic formulation that is a conservative approximation of the original stochastic optimal control problem. This approximate problem can be solved using gradient-based optimization techniques. We conclude the paper with a simulation study.
format	Journal Article
author	Sun, Y. Aw, E. Loxton, R. Teo, Kok Lay
spellingShingle	Sun, Y. Aw, E. Loxton, R. Teo, Kok Lay Chance-constrained optimization for pension fund portfolios in the presence of default risk
author_facet	Sun, Y. Aw, E. Loxton, R. Teo, Kok Lay
author_sort	Sun, Y.
title	Chance-constrained optimization for pension fund portfolios in the presence of default risk
title_short	Chance-constrained optimization for pension fund portfolios in the presence of default risk
title_full	Chance-constrained optimization for pension fund portfolios in the presence of default risk
title_fullStr	Chance-constrained optimization for pension fund portfolios in the presence of default risk
title_full_unstemmed	Chance-constrained optimization for pension fund portfolios in the presence of default risk
title_sort	chance-constrained optimization for pension fund portfolios in the presence of default risk
publisher	Elsevier BV * North-Holland
publishDate	2016
url	http://hdl.handle.net/20.500.11937/5038
first_indexed	2018-09-06T17:56:38Z
last_indexed	2018-09-06T17:56:38Z
_version_	1610881798788612096

Chance-constrained optimization for pension fund portfolios in the presence of default risk

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