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Han, Nan-Wei; Hung, Mao-Wei

Optimal asset allocation for DC pension plans under inflation. (English) Zbl 1284.91520

Insur. Math. Econ. 51, No. 1, 172-181 (2012).
Summary: In this paper, the stochastic dynamic programming approach is used to investigate the optimal asset allocation for a defined-contribution pension plan with downside protection under stochastic inflation. The plan participant invests the fund wealth and the stochastic interim contribution flows into the financial market. The nominal interest rate model is described by the Cox-Ingersoll-Ross dynamics [J. C. Cox et al., Econometrica 53, 385–407 (1985; Zbl 1274.91447)]. To cope with the inflation risk, the inflation indexed bond is included in the asset menu. The retired individuals receive an annuity that is indexed by inflation and a downside protection on the amount of this annuity is considered. The closed-form solution is derived under the CRRA utility function. Finally, a numerical application is presented to characterize the dynamic behavior of the optimal investment strategy.

Cited in 61 Documents

MSC:

91G10 Portfolio theory
91B30 Risk theory, insurance (MSC2010)
90C39 Dynamic programming
90C15 Stochastic programming

Keywords:

defined-contribution pension plan; inflation risk; inflation-indexed bond; stochastic dynamic programming; minimum guarantee

Citations:

Zbl 1274.91447
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Full Text: DOI

References:

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