Modeling assets and liabilities of a finnish pension insurance company: a VEqC approach

Abstract

This paper develops a stochastic model for assets and liabilities of a Finnish pension insurance company. The assets and liabilities are expressed in terms of seven economic factors from Finland and the EU-area. The development of these factors is modeled with a Vector Equilibrium Correction model, that incorporates statistical information with expert views in the form of user specified growth rates and long term equilibria. The forecast performance of the resulting model is tested and the model is used in long-term solvency and asset liability simulations.