Asset-liability management for pension funds in a time-varying volatility environment

Abstract

In this article, we develop a framework for asset-liability management for pension funds in a time-varying volatility environment. We use sophisticated dynamic econometric models for the variances–covariances of the asset classes in which the pension fund is investing, while for the liability structure we employ two standard approaches that have been used in the relevant actuarial literature. The models implemented are used in the asset allocation process of the pension fund, as well as for risk management purposes. The constructed portfolios have significant economic value according to well-known performance measures.