Starjournal Quotation Geyer, Alois, Ziemba, William T.. 2008. The Innovest Austrian Pension Fund Financial Planning Model InnoALM. Operations Research 56 (4): 797-810.


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Abstract

This paper describes the financial planning model InnoALM we developed at Innovest for the Austrian pension fund of the electronics firm Siemens. The model uses a multiperiod stochastic linear programming framework with a flexible number of time periods of varying length. Uncertainty is modeled using multiperiod discrete probability scenarios for random return and other model parameters. The correlations across asset classes, of bonds, stocks, cash, and other financial instruments, are state dependent using multiple correlation matrices that correspond to differing market conditions. This feature allows InnoALM to anticipate and react to severe as well as normal market conditions. Austrian pension law and policy considerations can be modeled as constraints in the optimization. The concave risk-averse preference function is to maximize the expected present value of terminal wealth at the specified horizon net of expected discounted convex (piecewise-linear) penalty costs for wealth and benchmark targets in each decision period. InnoALM has a user interface that provides visualization of key model outputs, the effect of input changes, growing pension benefits from increased deterministic wealth target violations, stochastic benchmark targets, security reserves, policy changes, etc. The solution process using the IBM OSL stochastic programming code is fast enough to generate virtually online decisions and results and allows for easy interaction of the user with the model to improve pension fund performance. The model has been used since 2000 for Siemens Austria, Siemens worldwide, and to evaluate possible pension fund regulation changes in Austria.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Operations Research
Citation Index SCI
WU Journalrating 2009 A+
Starjournal Y
Language English
Title The Innovest Austrian Pension Fund Financial Planning Model InnoALM
Volume 56
Number 4
Year 2008
Page from 797
Page to 810
Reviewed? Y
URL http://or.journal.informs.org/

Associations

Projects
Stochastic optimization of multi-period asset allocation problems
PhD Programm: Vienna Graduate School of Finance
People
Geyer, Alois (Details)
External
Ziemba, William T. (Canada)
Organization
Institute for Financial Research IN (Details)
Research areas (Ă–STAT Classification 'Statistik Austria')
1121 Operations research (Details)
5361 Financial management (Details)
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