We take into account the asset allocation problem for a pension fund which maximizes the expected present value of its wealth augmented by the prospective mathematical reserve at the death time of a representative member. When both the interest rate and the market price of risk are deterministic, we are able to compute an explicit solution. In a simplified framework we demonstrate that this optimal portfolio is always less risky than the Merton’s (1969-1971) one. In particular, the asset allocation is less and less risky until the pension date while, after retirement of the fund’s member, it becomes riskier and riskier.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by University of Brescia, Department of Economics in its series Working Papers with number
ubs0403.