How Do the Consideration of Non-Normal Return Distributions and of Higher Moments Influence the Optimal Asset Allocation in Swiss Pension Funds?

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Version: Author's accepted manuscript
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Serval ID
serval:BIB_E65585536AD8
Type
Inproceedings: an article in a conference proceedings.
Collection
Publications
Institution
Title
How Do the Consideration of Non-Normal Return Distributions and of Higher Moments Influence the Optimal Asset Allocation in Swiss Pension Funds?
Title of the conference
Zeitschrift für die gesamte Versicherungswissenschaft, Sonderheft zur Jahrestagung 2018
Author(s)
Müller P., Wagner J.
ISSN
0044-2585
Publication state
Published
Issued date
23/08/2018
Peer-reviewed
Oui
Language
english
Abstract
The low interest rates that prevail on many capital markets impose great challenges for the asset management of financial organizations. They try to achieve target returns for their clients, a solid one-period funding ratio and a low one-period underfunding probability. In this summarizing contribution of Mu ̈ller and Wagner (2018), we aim to study the impact of capital allocation strategies for pension funds in Switzerland. Thereby, we compare classic Markowitz theory with an extended Taylor series approach for the utility function. It is further analyzed how the assumption of normally distributed returns drives the optimal asset allocation when compared with using the distributions corresponding to the best fit of the historical data. Taking the extended utility function including the first four central moments and the alternative return distributions, we simulate the assets of a pension fund in a one- period model with the Monte Carlo method. A comparison of these results with those obtained from the classic minimum variance theory concludes that a considerable change of the portfolio weights takes place. Our research is relevant for theory and practice alike. Financial institutions can strongly profit from comparing different approaches when assessing their investment strategy.
Create date
13/07/2018 14:36
Last modification date
20/08/2019 16:09
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