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Optimal asset allocation for aggregated defined benefit pension funds with stochastic interest rates

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  • Ricardo Josa-Fombedilla
  • Juan Pablo Rincon-Zapatero

Abstract

In this paper we study the optimal management of an aggregated pension fund of defined benefit type, in the presence of a stochastic interest rate. We suppose that the sponsor can invest in a savings account, in a risky stock and in a bond, with the aim of minimizing deviations of the unfunded actuarial liability from zero along a finite time horizon. We solve the problem by means of optimal stochastic control techniques and analyze the influence on the optimal solution of some of the parameters involved in the model.

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Bibliographic Info

Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we078148.

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Date of creation: Dec 2008
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Handle: RePEc:cte:werepe:we078148

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Keywords: Pension funds; Stochastic control; Optimal portfolio; Stochastic interest rate; 91B28; 93E20; 62P05; 60H10; 60J60; E13; B81;

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Cited by:
  1. Guan, Guohui & Liang, Zongxia, 2014. "Optimal reinsurance and investment strategies for insurer under interest rate and inflation risks," Insurance: Mathematics and Economics, Elsevier, vol. 55(C), pages 105-115.
  2. Mao, Hong & Carson, James M. & Ostaszewski, Krzysztof M. & Wen, Zhongkai, 2013. "Optimal decision on dynamic insurance price and investment portfolio of an insurer," Insurance: Mathematics and Economics, Elsevier, vol. 52(2), pages 359-369.
  3. Lioui, Abraham & Poncet, Patrice, 2013. "Optimal benchmarking for active portfolio managers," European Journal of Operational Research, Elsevier, Elsevier, vol. 226(2), pages 268-276.
  4. Di Giacinto, Marina & Federico, Salvatore & Gozzi, Fausto & Vigna, Elena, 2014. "Income drawdown option with minimum guarantee," European Journal of Operational Research, Elsevier, Elsevier, vol. 234(3), pages 610-624.
  5. Elisa Luciano & Luca Regis, 2012. "Demographic risk transfer: is it worth for annuity providers?," ICER Working Papers, ICER - International Centre for Economic Research 11-2012, ICER - International Centre for Economic Research.
  6. Kerem SENEL & A. Bulent PAMUKCU, 2012. "A Comparative Study For Multi-Period Asset Allocation Of Defined Contribution Schemes: Evidence From Turkey," Istanbul Commerce University Journal of Social Sciences, Istanbul Commerce University, Istanbul Commerce University, vol. 21(1), pages 289-304.
  7. Josa-Fombellida, Ricardo & Rincón-Zapatero, Juan Pablo, 2012. "Stochastic pension funding when the benefit and the risky asset follow jump diffusion processes," European Journal of Operational Research, Elsevier, Elsevier, vol. 220(2), pages 404-413.

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