Series Quantitative Methods Pension Fund Optimal Allocations

We address the problem of a private pension plan sponsor who has to decide the best pension funds that should be offered to the pension plan members. Starting from the analysis of the population of the plan in order to identify a set of representative subscribers, we focus on an individual optimal portfolio allocation in a pension perspective. Then, the optimal allocation for each representative will become a pension fund. For each representative, we propose a multistage stochastic program (MSP) which includes a multi-criteria objective function. The optimal choice is the portfolio allocation that minimizes the Average Value at Risk Deviation of the final wealth and satisfies a wealth target in the final stage. Stochasticity arises from investor’s salary process and asset returns. The stochastic processes are assumed to be correlated. Numerical results show optimal dynamic portfolios with respect to investor’s preferences and then the best pension funds the provider can offer.