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Modelling and software prototyping for asset-liability management applied to pension funds

Final Activity Report Summary - ALM-PF (Modelling and software prototyping for asset-liability management applied to pension funds)

The ALM-PF project has had a twofold result:
* the exchange of different approaches and methodologies between the academic and the industrial environment:
* the deep study and the development of modern stochastic models applied to the financial market.

The main work activities, to reach the project objective and to pursue the expected results, have been:
* The study of the new Italian pension systems law (Legislative decree N. 252 05/12/2005) and the analysis of the Italian insurance regulation (Legislative decree N. 209 07/09/2005).
* Analysis of the Italian actuarial standard formulas and the existing and necessary low duties.
* Development of the first deterministic real world models both for the accumulation than for the annuity period.
* Gap analysis between the ALM-PF project purpose and the Swedish project previously developed by ITWM.
* Study of the Solvency II impact into the ALM-PF models and into the Italian insurance and pension funds environment.
* Deep analysis about the 'Solvency capital requirement' (SCR) standard formula, the 'Risk margin' (RM) and the 'Cost of capital' (CoC) evaluation.
* Study of the main solutions to analyse the future assets class (market value vs book value).
* Development of the real world stochastic model.
* Project partner identification and data collection.
* Data analysis and data normalisation.
* Identification of the best software solution to fulfill the market request "R-Project" and the project purpose.
* Software and DB engineering.
* Testing activities and outcomes analysis.
* Outcomes sharing and gap analysis.
* Models improvement and models engineering.
* Final testing activities and outcomes certification.

The related results were double:
* Information and skills sharing: the main TOK-IAP project purpose is to share and develop resources between the industrial and the scientific environment to reach new and modern solutions. This goal was the ALM-PF milestone and both Infracom and FRAUNHOFER Institute have tried to pursue this aim. For this reason we can say that the continuous relationship between the ITWM researches and the Infracom employees has generated a real added value and this process was the base for a new internal research mechanism and a new and considerable international mental approach.
During the project development we were able to merge the functional (from Infracom) and the mathematical and theoretical (from ITWM) approaches, this was a great result that has generated a new kind of skills, precious for future activities, collaborations and developments.

* Project outcomes: the project results and outcomes were exciting, not only for the ALM-PF objectives achieved but also for the new and future possibilities to apply the developed models in different environments. The new EU insurance regulations and the financial earthquake generated by the subprime phenomenon have affected the project development, for this reason we have decided to modify our approach to build a modern and relevant models typology considering also the future market request. Our studies, works and outcomes were shared with the scientific and actuarial environment, and also with some market players, to have a real feed-back about our efforts and project goals.