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Impulse control of pension fund contributions, in a regime switching economy

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  • Hainaut, Donatien

Abstract

In defined benefit pension plans, allowances are independent from the financial performance of the fund. And the sponsoring firm pays regularly contributions to limit deviations of fund assets from the mathematical reserve, necessary for covering the promised liabilities. This research paper proposes a method to optimize the timing and size of contributions, in a regime switching economy. The model takes into consideration important market frictions, like transactions costs, late payments and illiquidity. The problem is solved numerically using dynamic programming and impulse control techniques. Our approach is based on parallel grids, with trinomial links, discretizing the asset return in each economic regime.

Suggested Citation

  • Hainaut, Donatien, 2014. "Impulse control of pension fund contributions, in a regime switching economy," European Journal of Operational Research, Elsevier, vol. 239(3), pages 810-819.
  • Handle: RePEc:eee:ejores:v:239:y:2014:i:3:p:810-819
    DOI: 10.1016/j.ejor.2014.06.016
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    References listed on IDEAS

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    Cited by:

    1. Bonneuil, N. & Boucekkine, R., 2016. "Optimal transition to renewable energy with threshold of irreversible pollution," European Journal of Operational Research, Elsevier, vol. 248(1), pages 257-262.
    2. Dias, José G. & Vermunt, Jeroen K. & Ramos, Sofia, 2015. "Clustering financial time series: New insights from an extended hidden Markov model," European Journal of Operational Research, Elsevier, vol. 243(3), pages 852-864.
    3. Bin Zou & Abel Cadenillas, 2017. "Optimal Investment and Liability Ratio Policies in a Multidimensional Regime Switching Model," Risks, MDPI, Open Access Journal, vol. 5(1), pages 1-22, January.
    4. Korn, Ralf & Melnyk, Yaroslav & Seifried, Frank Thomas, 2017. "Stochastic impulse control with regime-switching dynamics," European Journal of Operational Research, Elsevier, vol. 260(3), pages 1024-1042.

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