Implementation of new regulatory rules in a multistage ALM model for Dutch pension funds

This paper discusses the implementation of new regulatory rules in a multistage recourse ALM model for Dutch pension funds. The new regulatory rules, which are called the ?Financieel Toetsingskader?, are effective as of January 2007 and have deep impact on the issues of valuation of liabilities, solvency, contribution rate, and indexation. Multistage recourse models have proved to be valuable for pension fund ALM. The ability to include the new regulatory rules would increase the practical value of these models.

A dynamic day-ahead paratransit planning problem

Abstract We consider a dynamic planning problem for the transport of elderly and disabled people. The focus is on a decision to make one day ahead: which requests to serve with own vehicles, and which ones to assign to subcontractors, under uncertainty of late requests which are gradually revealed during the day of operation. We call this problem the Dynamic Day-ahead Paratransit Planning problem. The developed model is a nonstandard two-stage recourse model in which ideas from stochastic programming and online optimization are combined: in the first stage clustered requests are assigned to vehicles, and in the dynamic second-stage problem an event-driven approach is used to cluster the late requests once they are revealed and subsequently assign them to vehicles. A genetic algorithm is used to solve the model. Computational results are presented for randomly generated data sets. Furthermore, a comparison is made to a similar problem we studied earlier in which the simplifying but unrealistic assumption has been made that all late requests are revealed at the beginning of the day of operation.

Nonstandard Analysis : a naive way to the infinitesimals (an unorthodox treatment of nonstandard analysis)

An infinitesimal is a ‘number’ that is smaller then each positive real number and is larger than each negative real number, so that in the real number system there is just one infinitesimal, i.e. zero. But most of the time only nonzero infinitesimals are of interest. This is related to the fact that when in the usual limit definition x is tending to c, most of the time only the values of x that are different from c are of interest. Hence the real number system has to be extended in some way or other in order to include all infinitesimals. This book is concerned with an attempt to introduce the infinitesimals and the other ‘nonstandard’ numbers in a naive, simpleminded way. Nevertheless, the resulting theory is hoped to be mathematically sound, and to be complete within obvious limits. Very likely, however, even if ‘nonstandard analysis’ is presented naively, we cannot do without the axiom of choice (there is a restricted version of nonstandard analysis, less elegant and less powerful, that does not need it). This is a pity, because this axiom is not obvious to every mathematician, and is even rejected by constructivistic mathematicians, which is not unreasonable as it does not tell us how the relevant choice could be made (except in simple cases, but then the axiom is not needed). The remaining basic assumptions that will be made would seem to be acceptable to many mathematicians, although they will be taken partly from formalistic mathematics – i.e. the usual logical principles, in particular the principle of the excluded third – as well as from constructivistic mathematics – i.e. that at the start of all of mathematics the natural numbers (in the classical sense of the term) are given to us. Not only the natural number, but also the set and the pair will be taken as primitive notions. The net effect of this is a version of mathematics that, except for truly nonstandard results, would seem to produce the same theorems as produced by classical mathematics. One of the consequences of combining ideas from the two main schools of mathematical thinking is that the usual axioms of set theory, notably those due to Zermelo and Fraenkel, will be ignored. First of all, there will be elements that are 17 18 not sets, the natural numbers to begin with, only then sets will be formed from them in stages (or day by day), whereas when starting from the Zermelo-Fraenkel axioms each mathematical entity, in particular each natural number, is some set. From a formal point of view the latter has the advantage that there is just one primitive notion, but from a naive point of view it is not so obvious why numbers should be sets (in formalistic mathematics after the natural numbers come to life in the form of sets, this fact is concealed as soon as possible). Moreover, aren’t we presupposing at least the order of the natural numbers already when writing down axioms by means of suitable symbols? To a certain extent nonstandard analysis is superfluous! For if a theorem of classical mathematics has a nonstandard proof, it also has a classical proof (this follows from what in nonstandard analysis is known as the ‘transfer’ theorem). Often the nonstandard proof is intuitively more attractive, simpler and shorter, which is one of the reasons to be interested in nonstandard analysis at all. Another reason is that totally new mathematical models for all kinds of problems can be (and in the mean time have been) formulated when infinitesimals or other nonstandard numbers occur in such models. A trivial example is a problem involving a heap of sand containing very many grains of sand, but where the number of grains of sand must not be infinite. Then taking the inverse of some positive infinitesimal and rounding the result up or down produces a so-called infinitely large ‘natural number’ that is larger than each ordinary natural number, but is smaller than infinity. It can be manipulated in much the same way as the ordinary numbers, which cannot, of course, be said of infinity. As a consequence the mathematics of infinitely large sets is essentially simpler than that of infinite sets. A peculiarity, however, is that the ‘selected’ infinitesimal and hence the infinitely large natural number are not specified the way the number of elements of a set of, say, 25 elements is specified. On the other hand, if ! is that infinitely large natural number, it makes sense to consider another heap of sand with !2 grains of sand, that can be thought of as the result of combining ! heaps of sand each containing w grains of sand. But in what follows the analysis of practical models containing nonstandard numbers will not be stressed.

Implementation of new regulatory rules in a multistage ALM model for Dutch pension funds

This paper discusses the implementation of new regulatory rules in a multistage recourse ALM model for Dutch pension funds. The new regulatory rules, which are called the ‘Financieel Toetsingskader’, are effective as of January 2007 and have deep impact on the issues of valuation of liabilities, solvency, contribution rate, and indexation. Multistage recourse models have proved to be valuable for pension fund ALM. The ability to include the new regulatory rules would increase the practical value of these models.