NO.PZ202212280100002002
问题如下：
ii. Identify one advantage in Thurlow’s situation of the ALM approach compared to the AO approach. (2008 Q4)
选项：
解释：
Asset Liability Management (ALM) is preferred because:
1. ALM reduces risk by explicitly considering the liability exposures of the pension plan.
2. The Asset Only approach can result in inefficient investment policies that may expose the plan to excessive and unrewarded risk relative to liabilities.
3. ALM approaches typically result in an optimal portfolio with a higher fixed income allocation.
The advantage is that the ALM approach takes the liability side into consideration when allocating assets.
The ALM approach takes both asset and liability sides into consideration, aiming to match asset with liability, while the AO approach only cares about the asset values.
Because pension plan can be considered as a liability and its below-average risk tolerance requires a good level of asset matching, ALM approach is more appropriate.
