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Dynamic Stochasticity in the control of liquidity in Asset and Liability Management (ALM) for pension funds


Many authors recognize that ALM is more art than science and is a developing area of practice. System dynamics may provide important tools to actuaries and financial managers as well as the board of directors and administrative council. In Brazil, because the stability of the economy, ALM is growing and technicians in a pension fund is expanding their knowledge base to do more work in it. Accordingly to the promise a pension fund does, they are trying to foresee or forecast asset adequacy, maintain it segregated and diversified and connected to the evolution of the liabilities.ALM is not yet a top priority of management and there is a lack of efficient dynamic models that may represent long-term liabilities and the risks involved. Some assumptions and practices must be well documented, quantified and understood in order to better manage the communication between the board of directors, the administrative council, actuaries and financial managers to assure that PF politics may be well managed.There are many ways to do ALM. In a portfolio basis, people can approach ALM from the balance sheet liability side, from the asset side where the portfolio is easier to adjust than the liabilities or from credit strategy point of view. Because it is management, the practices revealed that actuaries must be involved in assets portfolio allocation decision and must manage assets and liabilities much more closely with financial managers and cooperate more to each other.Concerns to better manage corporate governance are changing this kind of organization and their management practices. Informational systems are evolving and become to inform about how to manage the liabilities and assets, and how to coordinate them. The assets allocations decision must be based on many scenarios and on a liability appraisal, which can give hypothesis about investment returns and the liabilities behavior. Annuities must be managed by realistic rates that reflect compensations in the short run. Securities and other hedge options for the assets must be considered on the board members level.The need to anticipate the regulatory environment, and factors movement lead to dynamic models that may show in a stochastic way their risks characteristics and may anticipate some issues that are likely to evolve. The portfolio must be managed against relevant benchmarks that must reflect yield targets, spreads, convexity, duration, quality and liquidity.Stochastic liquidity processes should:1. Reflect the short-term cash flow movements, representing the asset and liabilities values;2. Exhibit some long-term mean reversion characteristics, reflecting the solvency of the pension fund and the equity equilibrium;3. Utilize available market data from market models and methodologies that express volatility;4. Maintain possible cross-correlations between other sources of stochastic variables and actuarial influences of deterministic factors;5. Reflect long-term uncertaintiesThe mathematical relations between dynamic asset and liability model variables must consider different risks according to different maturity stages of a pension fund.Because most decisions are made without advance knowledge of their consequences, it is sometimes still difficult to a manager to obtain precise information on the right timing at a low cost. This way, heuristics have been made based on tacit business knowledge.As we see, causal thinking may be used to identify risk factors and quantify their impacts on the system. The basic modes of behavior in system dynamics like exponential growth, goal seeking, and oscillations created by positive or negative feedback with time delays or not, are potential sources of risk that may be considered in an ALM analysis, amplifying it capability to be not just balance-sheet but also a risk oriented approach.Since the decisions under uncertainty become complex, specially because the low comprehension of the long term best interests of the system as a whole, it is possibl......

【作者名称】: Ricardo Matos Chaim
【作者单位】: University of Brasilia, DATAPREV, Getulio Vargas Foundation
【关 键 词】: Dynamic Stochasticity in the control of liquidity in Asset and Liability Management (ALM) for pension funds
【会议名称】: System Dynamics Society International Conference; System Dynamics Society Anniversary Celebration; 20070729-0802; 20070729-0802; Boston,MA(US); Boston,MA(US)
【期刊论文数据库】: [DBS_Articles_01]
【期刊论文编号】: 100,827,747
【摘要长度】: 4,000
【会议地点】: Boston,MA(US);Boston,MA(US)
【会议组织】: University of Brasilia; DATAPREV; Getulio Vargas Foundation
【会议时间】: 2007
【上篇论文】: 外文会议 - A PRELIMINARY MODEL OF THE VULNERABILITY BLACK MARKET
【下篇论文】: 外文会议 - From Computing with Numbers to Computing with Words ― From Manipulation of Measurements to Manipulation of Perceptions

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