Using orthogonal GARCH matrixes in the active portfolio management of defined benefit pension plans: A test for Michoacán
De la Torre-Torres, Oscar V.
Economía, teoría y práctica
Asset pricing; financial forecasting and simulation; hypothe -; portfolio choice
This paper presents the usefulness of an active portfolio management process with ortho- gonal garch (ogarch) matrixes in order to achieve a 7.5% actuarial target return in defined benefit pension funds such as the Dirección de Pensiones Civiles del Estado de Michoacán. To prove this, four discrete event simulations were performed using, in the first scenario, a passive portfolio management process with a target position rebalancing discipline and, in the other three, an active portfolio management with a range portfolio rebalancing one. In these last three simulations, a constant covariance, a Gaussian distribution ogarch and a Student's t-distribution ogarch covariance matrix were used. The attained results suggest that the Student's t-distribution ogarch matrix is the most suitable for the investment process.