The Enterprise Annuity Actuarial Modeling And Asset Allocation Study

As the second pillar of China's social security system, corporate pension will have a large impact on the income and life of retired employees. This paper focuses on the study on asset allocation of the pension fund, trying to determine the optimized investment portfolio when contribution rate is fixed. A set of actuarial models, which combines an asset model, a liability model, asset allocation scenarios and a model of other economic factors, is built to find the solution. Monte Carlo simulation is used to assess various asset allocation scenarios on their value-at-risk. It is noticed that stock is high return, high risk asset while CD is low return, high risk asset, which makes diversified portfolio essential. A dynamic threshold asset allocation strategy is recommended on the Chinese market. Stochastic asset model is considered to reduce model risk. In addition, an explicit solution to portfolio optimization is given under a specific utility function, which justifies the dynamic threshold asset allocation strategy.