Multi-stage Stochastic Programming Asset/Liability Management Model with VaR Constraint at the Social Security Organization

Objective: Optimizing asset allocation at the asset class level and measuring the insolvency risk of the Social Security Organization (SSO)by considering the value at risk constraint. Methods: At first we hand-collect the book value of assets for the SSO using its financial statements from 2001 thro...

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Autores principales:	Kiarash Mehrani, Asghar Gerami
Formato:	article
Lenguaje:	FA
Publicado:	University of Tehran 2021
Materias:	multi-stage stochastic programming financial asset asset/liability management insolvency risk value-at-risk Finance HG1-9999
Acceso en línea:	https://doaj.org/article/35037981391a49ccbf2d984dea8fbbe1
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spelling	oai:doaj.org-article:35037981391a49ccbf2d984dea8fbbe12021-11-14T06:00:48ZMulti-stage Stochastic Programming Asset/Liability Management Model with VaR Constraint at the Social Security Organization1024-81532423-537710.22059/frj.2020.267357.1006874https://doaj.org/article/35037981391a49ccbf2d984dea8fbbe12021-05-01T00:00:00Zhttps://jfr.ut.ac.ir/article_81940_434ab08ef70f6ecbbd084bc21d2b7f89.pdfhttps://doaj.org/toc/1024-8153https://doaj.org/toc/2423-5377Objective: Optimizing asset allocation at the asset class level and measuring the insolvency risk of the Social Security Organization (SSO)by considering the value at risk constraint. Methods: At first we hand-collect the book value of assets for the SSO using its financial statements from 2001 through 2015 and categorize assets into three asset classes: stocks, real estate and bonds. We then estimate the market value of assets using returns for the corresponding market during this period. Subsequently, we generate 300 forecasts for each market return over a 75-year horizon by the Monte Carlo simulation method. These efforts, Combined with the predictions of expenditures and contributions of the SSO from the International Labor Organization (ILO), for helping us have sufficient data to design and solve a multi-stage stochastic programming model. Also, we have adequate data to calculate the probability of insolvency in the SSO by counting the number of infeasible solutions through all forecasts in the model. Results: We obtain optimal allocation for all three asset classes and propose the types of reforms required for decreasing the insolvency risk in the SSO throughout the long term mending period in the way that imposes minimum pressure on pensioners and contributors simultaneously. Conclusion: Despite the constraints faced by the SSO in terms of asset allocation, our results indicate that certain allocations are capable of resolving the underfunding problem for the SSO over the studied horizon. This solution involves implementing a set of gradual parametric reforms and optimal asset allocation. In a way that could meet stakeholders' purpose. We consider the restriction that the state is facing in payback its debt to the SSO whereby securitize them. After all, legislation reforms in running an independent regulator organization are essential. These exercises make us impose an excellent government for pension funds and construct an investment policy for them to reduce harmful interventionKiarash MehraniAsghar GeramiUniversity of Tehranarticlemulti-stage stochastic programmingfinancial assetasset/liability managementinsolvency riskvalue-at-riskFinanceHG1-9999FAتحقیقات مالی, Vol 23, Iss 1, Pp 64-86 (2021)
institution	DOAJ
collection	DOAJ
language	FA
topic	multi-stage stochastic programming financial asset asset/liability management insolvency risk value-at-risk Finance HG1-9999
spellingShingle	multi-stage stochastic programming financial asset asset/liability management insolvency risk value-at-risk Finance HG1-9999 Kiarash Mehrani Asghar Gerami Multi-stage Stochastic Programming Asset/Liability Management Model with VaR Constraint at the Social Security Organization
description	Objective: Optimizing asset allocation at the asset class level and measuring the insolvency risk of the Social Security Organization (SSO)by considering the value at risk constraint. Methods: At first we hand-collect the book value of assets for the SSO using its financial statements from 2001 through 2015 and categorize assets into three asset classes: stocks, real estate and bonds. We then estimate the market value of assets using returns for the corresponding market during this period. Subsequently, we generate 300 forecasts for each market return over a 75-year horizon by the Monte Carlo simulation method. These efforts, Combined with the predictions of expenditures and contributions of the SSO from the International Labor Organization (ILO), for helping us have sufficient data to design and solve a multi-stage stochastic programming model. Also, we have adequate data to calculate the probability of insolvency in the SSO by counting the number of infeasible solutions through all forecasts in the model. Results: We obtain optimal allocation for all three asset classes and propose the types of reforms required for decreasing the insolvency risk in the SSO throughout the long term mending period in the way that imposes minimum pressure on pensioners and contributors simultaneously. Conclusion: Despite the constraints faced by the SSO in terms of asset allocation, our results indicate that certain allocations are capable of resolving the underfunding problem for the SSO over the studied horizon. This solution involves implementing a set of gradual parametric reforms and optimal asset allocation. In a way that could meet stakeholders' purpose. We consider the restriction that the state is facing in payback its debt to the SSO whereby securitize them. After all, legislation reforms in running an independent regulator organization are essential. These exercises make us impose an excellent government for pension funds and construct an investment policy for them to reduce harmful intervention
format	article
author	Kiarash Mehrani Asghar Gerami
author_facet	Kiarash Mehrani Asghar Gerami
author_sort	Kiarash Mehrani
title	Multi-stage Stochastic Programming Asset/Liability Management Model with VaR Constraint at the Social Security Organization
title_short	Multi-stage Stochastic Programming Asset/Liability Management Model with VaR Constraint at the Social Security Organization
title_full	Multi-stage Stochastic Programming Asset/Liability Management Model with VaR Constraint at the Social Security Organization
title_fullStr	Multi-stage Stochastic Programming Asset/Liability Management Model with VaR Constraint at the Social Security Organization
title_full_unstemmed	Multi-stage Stochastic Programming Asset/Liability Management Model with VaR Constraint at the Social Security Organization
title_sort	multi-stage stochastic programming asset/liability management model with var constraint at the social security organization
publisher	University of Tehran
publishDate	2021
url	https://doaj.org/article/35037981391a49ccbf2d984dea8fbbe1
work_keys_str_mv	AT kiarashmehrani multistagestochasticprogrammingassetliabilitymanagementmodelwithvarconstraintatthesocialsecurityorganization AT asghargerami multistagestochasticprogrammingassetliabilitymanagementmodelwithvarconstraintatthesocialsecurityorganization
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Multi-stage Stochastic Programming Asset/Liability Management Model with VaR Constraint at the Social Security Organization

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