Robustness for Asset-Liability Management of Pension Funds

Ferenc Horváth, Frank de Jong, Bas Werker

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We survey the literature on robust dynamic asset allocation with an emphasis on the asset-liability management of pension funds. After demonstrating the difference between risk and uncertainty (Section 1), we introduce two levels of uncertainty: parameter uncertainty and model uncertainty (Section 2.1). We describe four of the most widely used approaches in robust dynamic asset allocation problems: the penalty approach, the constraint approach, the Bayesian approach and the approach of smooth recursive preferences (Sections 2.4-2.7). In Section 3 we demonstrate the importance of uncertainty for investors (including pension funds) from both a normative and a positive aspect, then we review the literature on robust asset management and on robust asset-liability management. Section 4 concludes.
Original languageEnglish
Place of PublicationTilburg
Number of pages46
Publication statusPublished - 2016

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NameNetspar Industry Paper
VolumeSurvey 47


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