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Asset allocation for a DC pension fund with stochastic income and mortality risk: A multi-period mean–variance framework

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  • Yao, Haixiang
  • Lai, Yongzeng
  • Ma, Qinghua
  • Jian, Minjie

Abstract

This paper investigates an asset allocation problem for defined contribution pension funds with stochastic income and mortality risk under a multi-period mean–variance framework. Different from most studies in the literature where the expected utility is maximized or the risk measured by the quadratic mean deviation is minimized, we consider synthetically both to enhance the return and to control the risk by the mean–variance criterion. First, we obtain the analytical expressions for the efficient investment strategy and the efficient frontier by adopting the Lagrange dual theory, the state variable transformation technique and the stochastic optimal control method. Then, we discuss some special cases under our model. Finally, a numerical example is presented to illustrate the results obtained in this paper.

Suggested Citation

  • Yao, Haixiang & Lai, Yongzeng & Ma, Qinghua & Jian, Minjie, 2014. "Asset allocation for a DC pension fund with stochastic income and mortality risk: A multi-period mean–variance framework," Insurance: Mathematics and Economics, Elsevier, vol. 54(C), pages 84-92.
    • Handle: RePEc:eee:insuma:v:54:y:2014:i:c:p:84-92
    DOI: 10.1016/j.insmatheco.2013.10.016
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    3. Wang, Pei & Shen, Yang & Zhang, Ling & Kang, Yuxin, 2021. "Equilibrium investment strategy for a DC pension plan with learning about stock return predictability," Insurance: Mathematics and Economics, Elsevier, vol. 100(C), pages 384-407.
    4. Liyuan Wang & Zhiping Chen, 2019. "Stochastic Game Theoretic Formulation for a Multi-Period DC Pension Plan with State-Dependent Risk Aversion," Mathematics, MDPI, vol. 7(1), pages 1-16, January.
    5. Bian, Lihua & Li, Zhongfei & Yao, Haixiang, 2018. "Pre-commitment and equilibrium investment strategies for the DC pension plan with regime switching and a return of premiums clause," Insurance: Mathematics and Economics, Elsevier, vol. 81(C), pages 78-94.
    6. Yao, Haixiang & Chen, Ping & Li, Xun, 2016. "Multi-period defined contribution pension funds investment management with regime-switching and mortality risk," Insurance: Mathematics and Economics, Elsevier, vol. 71(C), pages 103-113.
    7. Wu, Huiling & Zeng, Yan, 2015. "Equilibrium investment strategy for defined-contribution pension schemes with generalized mean–variance criterion and mortality risk," Insurance: Mathematics and Economics, Elsevier, vol. 64(C), pages 396-408.
    8. Guan, Guohui & Liang, Zongxia, 2016. "A stochastic Nash equilibrium portfolio game between two DC pension funds," Insurance: Mathematics and Economics, Elsevier, vol. 70(C), pages 237-244.
    9. Henrique Ferreira Morici & Elena Vigna, 2023. "Optimal additional voluntary contribution in DC pension schemes to manage inadequacy risk," Carlo Alberto Notebooks 699 JEL Classification: C, Collegio Carlo Alberto.
    10. Zhang, Ling & Zhang, Hao & Yao, Haixiang, 2018. "Optimal investment management for a defined contribution pension fund under imperfect information," Insurance: Mathematics and Economics, Elsevier, vol. 79(C), pages 210-224.
    11. Guan, Guohui & Liang, Zongxia, 2016. "Optimal management of DC pension plan under loss aversion and Value-at-Risk constraints," Insurance: Mathematics and Economics, Elsevier, vol. 69(C), pages 224-237.
    12. Guan, Guohui & Liang, Zongxia, 2015. "Mean–variance efficiency of DC pension plan under stochastic interest rate and mean-reverting returns," Insurance: Mathematics and Economics, Elsevier, vol. 61(C), pages 99-109.

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