Liability-Driven Investment with DownsideRisk

Ang, Andrew; Chen, Bingxu; Sundaresan, Suresh

doi:10.3905/jpm.2013.40.1.071

Cited by 51 publications

(7 citation statements)

References 22 publications

(48 reference statements)

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“…Downside risks can be particularly important for a number of investors. For example, pension funds face large liabilities towards their beneficiaries and the failure of their assets to meet those liabilities carries significant penalties (Ang, Chen, and Sundaresan, 2013). Thus, such investors face downside risk constraints.…”

Section: Introductionmentioning

confidence: 99%

ESG Shareholder Engagement and Downside Risk

et al. 2016

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Section: Introductionmentioning

confidence: 99%

ESG Shareholder Engagement and Downside Risk

et al. 2016

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“…Under these circumstances, numerous studies have attempted to find and explore liability-driven investment (LDI), which could improve the funding status by managing the contribution rate risk and solvency risk. The framework of LDI generally distinguishes two different levels of asset allocation decision: a liability hedge portfolio and a portfolio based on various investment criteria (Amenc et al 2010;Qian 2012;and Ang et al 2013).…”

Section: Literature Reviewmentioning

confidence: 99%

“…The realization of optimal investment policies in defined-benefit (DB) pension plans has attracted a great deal of attention in view of pension fund risk management. Regarding DB pension funding, most studies have strongly focused on establishing optimal strategies derived from the well-known mean-variance (MV) framework motivated by risk aversion (e.g., Sharpe and Tint 1990;Ezra 1991;Leibowitz et al 1992;Frauendorfer et al 2007;Xie 2009;Ang et al 2013;Jung et al 2022) as well as the control theory framework (e.g., Cairns 2000;Haberman and Vigna 2002;Miao and Wang 2006;Ngwira and Gerrard 2007;Josa-Fombellida et al 2018). However, as mentioned in Siegmann (2007), these approaches to optimizing investment policies do not take into account the sponsors' tendency to be more sensitive to losses than to gains.…”

Section: Introductionmentioning

confidence: 99%

Dynamic Liability-Driven Investment under Sponsor’s Loss Aversion

Lee,

Sung

2024

Risks

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This paper investigates a dynamic liability-driven investment policy for defined-benefit (DB) plans by incorporating the loss aversion of a sponsor, who is assumed to be more sensitive to underfunding than overfunding. Through the lens of prospect theory, we first set up a loss-aversion utility function for a sponsor whose utility depends on the funding ratio in each period, obtained from stochastic processes of pension assets and liabilities. We then construct a multi-horizon dynamic control optimization problem to find the optimal investment strategy that maximizes the expected utility of the plan sponsor. A genetic algorithm is employed to provide a numerical solution for our nonlinear dynamic optimization problem. Our results suggest that the overall paths of the optimal equity allocation decline as the age of a plan participant reaches retirement. We also find that the equity portion of the portfolio increases when a sponsor is less loss-averse or the contribution rate is lower.

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“…The authors show that the number of daily COVID-19 confirmed cases in Vietnam has a negative impact on stock returns. Therefore, systematic and especially downside risks are of great importance for institutional investors, including pension funds (Ang et al 2013), banks, and insurance companies due to regulatory requirements (Hoepner et al 2023).…”

Section: Introductionmentioning

confidence: 99%

Do ESG Factors Prove Significant Predictors of Systematic and Downside Risks in the Russian Market after Controlling for Stock Liquidity?

Teplova,

Sokolova,

Gurov

2024

JRFM

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This paper reveals the impact of environmental, social, and governance (ESG) scores on systematic and downside risks in the Russian stock market. We analyze the influence of a broad set of ESG factors controlling for stock liquidity, financial indicators of companies, and macroeconomic indicators. The period under consideration is from 2013 to 2021. The methodology of our research is based on regression analysis with multiplicative variables to reveal the changes induced by the COVID-19 pandemic. We obtain several novel results. Social responsibility is one of the most significant non-fundamental factors influencing both systematic and downside risks. The most important environment-related component is the measure of a company’s propensity to environmental innovations. Some dimensions of stock liquidity are also significant. For some factors, such as the COVID-19 pandemic and debt burden, we find an unexpected direction of influence on liquidity.

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Liability-Driven Investment with DownsideRisk

Cited by 51 publications

References 22 publications

ESG Shareholder Engagement and Downside Risk

ESG Shareholder Engagement and Downside Risk

Dynamic Liability-Driven Investment under Sponsor’s Loss Aversion

Do ESG Factors Prove Significant Predictors of Systematic and Downside Risks in the Russian Market after Controlling for Stock Liquidity?

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