Optimizing the Nuclear Waste Fund's Profit

Sammanfattning: The Nuclear Waste Fund constitutes a financial system that finances future costs of the management of spent nuclear fuel as well as decommissioning of nuclear power plants. The fund invests its capital under strict rules which are stipulated in the investment policy established by the board. The policy stipulates that the fund can only invest according to certain allocation limits, and restricts it to invest solely in nominal and inflation-linked bonds issued by the Swedish state as well as treasury securities. A norm portfolio is built to compare the performance of the NWF’s investments. On average, the NWF has outperformed the norm portfolio on recent years, but it may not always have been optimal. Recent studies suggest that allocation limits should be revised over time as the return and risk parameters may change over time. This study focused on simulating three different portfolios where the allocation limits and investment options were extended to see if these extensions would outperform the norm portfolio while maintaining a set risk limit. Portfolio A consisted of OMRX REAL and OMRX TBOND indexes, Portfolio B consisted of OMRX REAL, OMRX TBOND and S&P Sweden 1+ Year Investment Grade Corporate Bond Indexes, and Portfolio C consisted of OMXR REAL, OMRX TBOND and OMXSPI indexes. The return of each portfolio for different weight distributions of the assets were simulated in MATLAB, and polynomial regression models were built in order to optimize the return as a function of the assets’ weights using a Lagrange Multiplier approach for each portfolio. The results depicted that the maximal returns of Portfolios A, B and C were 4.00%, 4.13% and 7.93% respectively, outperforming the norm portfolio’s average return of 3.69% over the time period 2009-2016.