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.
|Place of Publication||Tilburg|
|Number of pages||46|
|Publication status||Published - 2016|
|Name||Netspar Industry Paper|
Horváth, F., de Jong, F., & Werker, B. (2016). Robustness for Asset-Liability Management of Pension Funds. (Netspar Industry Paper; Vol. Survey 47). NETSPAR. https://www.netspar.nl/assets/uploads/P20161000_sur047_werker.pdf