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Application of the Multiperiod Mean-Variance Method for Pension Fund Asset Allocation
Rudy Irawan & Bona C. Siahaan

University of Indonesia


Abstract

This research discusses about multiperiod mean-variance application for optimal asset allocation in pension fund institutions by considering the effect of mortality factors and changes in contributions. The selection of assets that will be used to find the optimal portfolio is carried out using Treasury Bill as risk-free assets and stock in the LQ45 index as risk assets that have the best performance during the period 2014 - 2018. The main objective of the use of multiperiod mean-variance is obtain minimum variance with optimal returns at the end of the period. The results of this reasearch indicate that the smallest return is owned by the asset allocation model without this contribution because without additional membership contribution, the amount of funds that can be invested is limited so the expected wealth terminal is smaller than other asset allocation models. Then the asset allocation without the mortality factor gives higher expected terminal wealth compared to other asset allocation models this is because in the absence of mortality the pension fund investment will not be forced to stop before the retirement period ends so that the portfolio return obtained is higher in proportion to other asset allocation models. While the asset allocation model using risk-free asset references, has a higher risk with the same return when compared with asset allocation using reference to risk assets, this indicates that the asset reference used affects the return and risk on the allocation of assets of the Pension Fund at the end of the period investation.

Keywords: pension funds, asset allocation, portfolio, mean variance, multiperiod, mortality

Topic: Economics

Link: https://ifory.id/abstract/8DduxyH2N7TY

Conference: International Conference on Economics, Business and Economic Education Science (ICEBEES 2019)

Plain Format | Corresponding Author (RUDY IRAWAN)

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