RT Journal Article
SR Electronic
T1 Coming Up Short: <em>Managing Underfunded Portfolios in an LDI-ES Framework</em>
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 95
OP 108
DO 10.3905/jpm.2014.41.1.095
VO 41
IS 1
A1 Sanjiv Das
A1 Seoyoung Kim
A1 Meir Statman
YR 2014
UL https://pm-research.com/content/41/1/95.abstract
AB The authors present a liability-directed investment (LDI) rebalancing framework that is based on expected shortfall (ES), denoted as LDI-ES, to prescribe remedies for an underfunded portfolio. Investors endowed with some current wealth optimize their target wealth at the end of N periods, subject to their tolerance for shortfalls from that target wealth. The authors contrast LDI-ES rebalancing with fixed-proportions rebalancing, in which portfolio allocations are rebalanced to ratios, such as 60:40, at the beginning of each of N periods. They consider critical issues of underfunding, in which no portfolio can meet the shortfall constraint, as well as the effectiveness of portfolio infusions in resolving underfunded situations relative to other measures, such as increasing risk, cutting back on target liabilities or goals, and extending the portfolio horizon.TOPICS: Portfolio construction, in portfolio management, pension funds