Annual variation of sporadic radar meteor rates

TLDR

The study proposes a general stochastic modeling framework for pension insurers’ asset returns and liability cash‑flows. The framework models equity and fixed‑income returns, mortality, inflation, and other risk factors as a multivariate stochastic process, and demonstrates its use in an asset‑liability analysis of a defined‑benefit pension fund. The model is interpretable, easily calibrated to data and forecasts, and enables the generation of a million scenarios in only a few minutes on a personal computer.

Abstract

This paper describes a general approach for stochastic modeling of assets returns and liability cash-flows of a typical pensions insurer. On the asset side, we model the investment returns on equities and various classes of fixed-income instruments including short- and long-maturity fixed-rate bonds as well as index-linked and corporate bonds. On the liability side, the risks are driven by future mortality developments as well as price and wage inflation. All the risk factors are modeled as a multivariate stochastic process that captures the dynamics and the dependencies across different risk factors. The model is easy to interpret and to calibrate to both historical data and to forecasts or expert views concerning the future. The simple structure of the model allows for efficient computations. The construction of a million scenarios takes only a few minutes on a personal computer. The approach is illustrated with an asset-liability analysis of a defined benefit pension fund.