scholarly journals The optimal investment strategy of a DC pension plan under deposit loan spread and the Ornstein-Uhlenbeck process

2020 ◽  
Author(s):  
Xu Xiao
Keyword(s):  
Pension Plan ◽  
Optimal Investment ◽  
Investment Strategy ◽  
Uhlenbeck Process ◽  
Loan Spread ◽  
Optimal Investment Strategy ◽  
Ornstein Uhlenbeck Process

scholarly journals The Role of Inflation-indexed Bond in Optimal Management of Defined Contribution Pension Plan During the Decumulation Phrase

2018 ◽  
Author(s):  
Xiaoyi Zhang ◽  
Junyi Guo
Keyword(s):  
Pension Plan ◽  
Optimal Investment ◽  
Investment Strategy ◽  
Programming Approach ◽  
Defined Contribution ◽  
Inflation Risk ◽  
Dynamic Programming Approach ◽  
Optimal Investment Strategy ◽  
Defined Contribution Pension Plan ◽  
Hamilton Jacobi Bellman

In this paper we investigate the optimal investment strategy for a defined contribution (DC) pension plan during the decumulation phrase which is risk-averse and pays close attention to inflation risk. The plan aims to maximize the expected constant relative risk aversion (CRRA) utility from the terminal wealth by investing the wealth in a financial market consisting of an inflation-indexed bond, an ordinary zero coupon bond and a risk-free asset. We derive the optimal investment strategy in closed-form using the dynamic programming approach by solving the corresponding Hamilton-Jacobi-Bellman (HJB) equation. Our theoretical and numerical results reveal that under some rational assumptions, an inflation-indexed bond do has significant advantage to hedge inflation risk.

scholarly journals Optimal Investment Strategy for DC Pension Plan with Stochastic Income and Inflation Risk under the Ornstein–Uhlenbeck Model

Mathematics ◽  
2021 ◽  
Vol 9 (15) ◽  
pp. 1756
Author(s):  
Yang Wang ◽  
Xiao Xu ◽  
Jizhou Zhang
Keyword(s):  
Control Method ◽  
Closed Form Solution ◽  
Pension Plan ◽  
Optimal Investment ◽  
Investment Strategy ◽  
Risky Asset ◽  
Legendre Transform ◽  
Defined Contribution ◽  
Inflation Risk ◽  
Optimal Investment Strategy

This paper is concerned with the optimal investment strategy for a defined contribution (DC) pension plan. We assumed that the financial market consists of a risk-free asset and a risky asset, where the risky asset is subject to the Ornstein–Uhlenbeck (O-U) process, and stochastic income and inflation risk were also considered in the model. We firstly derived the Hamilton–Jacobi–Bellman (HJB) equation through the stochastic control method. Secondly, under the logarithmic utility function, the closed-form solution of optimal asset allocation was obtained by using the Legendre transform method. Finally, we give several numerical examples and a financial analysis.

scholarly journals Asset allocation for a DC pension plan with learning about stock return predictability

2021 ◽  
Vol 0 (0) ◽  
pp. 0
Author(s):  
Pei Wang ◽  
Ling Zhang ◽  
Zhongfei Li
Keyword(s):  
Stock Return ◽  
Pension Plan ◽  
Optimal Investment ◽  
Investment Strategy ◽  
Return Predictability ◽  
Programming Approach ◽  
Model Parameters ◽  
Stock Return Predictability ◽  
Optimal Investment Strategy ◽  
The Impact

<p style='text-indent:20px;'>This paper investigates an optimal investment problem for a defined contribution pension plan member who receives a stochastic salary, and considers inflation risk and stock return predictability. The member aims to maximize the expected power utility from her terminal real wealth by investing her pension account wealth in a financial market consisting of a risk-free asset, an inflation-indexed bond and a stock. The expected excess return on the stock can be predicted by both an observable predictor and an unobservable predictor, and the member has to estimate the unobservable predictor by learning the history information. By using the filtering techniques and dynamic programming approach, the closed-form optimal investment strategy and the corresponding value function are derived. Finally, with the help of numerical analysis, we explore the impact of model parameters on the optimal investment strategy, and analyze the welfare benefits from leaning and using inflation-indexed bond to hedge the stock return predictors.</p>

scholarly journals Relative Performance Concern on DC Pension Plan under Heston Model with Inflation Risk

2020 ◽  
Vol 2020 ◽  
pp. 1-14
Author(s):  
Aimin Song ◽  
Peimin Chen
Keyword(s):  
Pension Plan ◽  
Optimal Investment ◽  
Investment Strategy ◽  
The State ◽  
Heston Model ◽  
Dynamic Programming Principle ◽  
Defined Contribution ◽  
Economic Implications ◽  
Inflation Risk ◽  
Optimal Investment Strategy

With the global outbreak of new coronavirus pneumonia, more and more countries have entered the state of sealing off cities. After the epidemic, with the shortage of some materials, the economy is very likely to enter the state of inflation. Thereby, it is necessary and urgent for us to reconsider investment problems involving inflation risk. In this paper, we mainly study the optimal investment strategy of two defined contribution (DC) pension managers with strategy interaction under inflation risk. The traditional portfolio literatures mainly focus on DC pension plan and try to maximize the expected utility of terminal nominal wealth. In this paper, we consider the more complicated situation that pension managers have, both concerns on relative wealth and relative risk aversion. Then, the objective function is constructed to satisfy these two concerns. The dynamic programming principle method is employed to solve the above problems, and a series of analytical solutions to this problem are obtained. Finally, some numerical examples are discussed for the economic implications to support our theoretical results.

scholarly journals Optimal Investment-Consumption Strategy under Inflation in a Markovian Regime-Switching Market

2016 ◽  
Vol 2016 ◽  
pp. 1-17 ◽  
Author(s):  
Huiling Wu
Keyword(s):  
Regime Switching ◽  
Stock Price ◽  
Optimal Investment ◽  
Investment Strategy ◽  
Power Utility ◽  
Optimal Investment Strategy ◽  
Admissible Strategies ◽  
Definition Of ◽  
Markovian Regime Switching ◽  
Optimal Investment And Consumption

This paper studies an investment-consumption problem under inflation. The consumption price level, the prices of the available assets, and the coefficient of the power utility are assumed to be sensitive to the states of underlying economy modulated by a continuous-time Markovian chain. The definition of admissible strategies and the verification theory corresponding to this stochastic control problem are presented. The analytical expression of the optimal investment strategy is derived. The existence, boundedness, and feasibility of the optimal consumption are proven. Finally, we analyze in detail by mathematical and numerical analysis how the risk aversion, the correlation coefficient between the inflation and the stock price, the inflation parameters, and the coefficient of utility affect the optimal investment and consumption strategy.

scholarly journals Optimal Investment and Proportional Reinsurance in a Regime-Switching Market Model under Forward Preferences

Mathematics ◽  
2021 ◽  
Vol 9 (14) ◽  
pp. 1610
Author(s):  
Katia Colaneri ◽  
Alessandra Cretarola ◽  
Benedetta Salterini
Keyword(s):  
Stock Prices ◽  
Regime Switching ◽  
Common Factor ◽  
Optimal Investment ◽  
Investment Strategy ◽  
Market Model ◽  
Sensitivity Analyses ◽  
Model Parameters ◽  
Insurance Company ◽  
Optimal Investment Strategy

In this paper, we study the optimal investment and reinsurance problem of an insurance company whose investment preferences are described via a forward dynamic exponential utility in a regime-switching market model. Financial and actuarial frameworks are dependent since stock prices and insurance claims vary according to a common factor given by a continuous time finite state Markov chain. We construct the value function and we prove that it is a forward dynamic utility. Then, we characterize the optimal investment strategy and the optimal proportional level of reinsurance. We also perform numerical experiments and provide sensitivity analyses with respect to some model parameters.

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