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Surplus Optimization characteristic any funding ratio

I am a little bit confused here…

Surplus Optimization has “any funding ratio” requirement but why?

Why surplus is even being considered if status is underfunded in first place? Shouldn’t be positive funding ratio to start with (surplus)? It is asset only approach though, that maximizes expected surplus return net of penalty for volatility.

Anyone? thanks

R

Success starts with Schweser. Study packages designed to fit any lifestyle.

Funding ratios don’t always need to be < 1. A pension could want to keep its plan 1.2 x funded therefore the expected volatility used in the MVO would be a % or $ amount to preserve that. Re read the section again and see if it brings clarity or put a page # for review.