Pedersen, Anne Marie Boiden2; Weissensteiner, Alex3; Poulsen, Rolf4
1 Department of Mathematical Sciences, Faculty of Science, Københavns Universitet2 Nykredit3 University of Bozen-Bolzano4 Department of Mathematical Sciences, Faculty of Science, Københavns Universitet
We analyze the financial planning problems of young households whose main decisions are how to finance the purchase of a house (liabilities) and how to allocate investments in pension savings schemes (assets). The problems are solved using a multi-stage stochastic programming model where the uncertainty is described by a scenario tree generated from a vector auto-regressive process for equity returns and interest rate evolution. We find strong evidence of the importance of taking into account the multi-stage nature of the problem, as well as the need to consider the asset and liability sides jointly.
Annals of Operations Research, 2013, Vol 205, Issue 1, p. 55-76