Liabilities – a multi-objective approach

Abstract

The majority of pension plans today are underfunded, uncertain about the market, the economic and regulatory environment and searching for a more stable approach to meeting their pension benefit obligations. For plan sponsors who want to adopt a more structured approach to asset–liability management, adopting a glide path framework that gradually de-risks their investment portfolio as funded status improves has become an attractive way to move towards their funding goal. To that end, this article describes a multi-objective optimization methodology known as the goal attainment method, an approach which can accommodate the simultaneous optimization of distinct objective functions, and shows how it can be used to construct glide path strategies for asset–liability applications.

Keywords:

• asset–liability investing
• multi-objective optimization
• glide path

JEL Classification:

• C00
• C61
• G11
• G23

View correction statement:

Corrigendum

Notes

This article was originally published with errors. This version has now been corrected. Please see Corrigendum (http://dx.doi.org/10.1080/13504851.2013.758472).