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Optimal investment for a pension fund under inflation risk

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Abstract

This paper investigates an optimal investment problem faced by a defined contribution (DC) pension fund manager under inflationary risk. It is assumed that a representative member of a DC pension plan contributes a fixed share of his salary to the pension fund during the finite time horizon [0, T]. The pension contributions are invested continuously in a risk-free bond, an index bond and a stock. The objective is to maximize the expected utility of terminal value of the pension fund. By solving this investment problem we present a way to deal with the optimization problem, in case there is a (positive) endowment (or contribution), using the martingale method. Copyright Springer-Verlag 2010

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  • Aihua Zhang & Christian-Oliver Ewald, 2010. "Optimal investment for a pension fund under inflation risk," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 71(2), pages 353-369, April.
  • Handle: RePEc:spr:mathme:v:71:y:2010:i:2:p:353-369
    DOI: 10.1007/s00186-009-0294-5
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    References listed on IDEAS

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    Cited by:

    1. Chyi Lin Lee & Ming-Long Lee, 2012. "Do European real estate stocks hedge inflation? Evidence from developed and emerging markets," ERES eres2012_155, European Real Estate Society (ERES).
    2. Jian Pan & Qingxian Xiao, 2017. "Optimal mean–variance asset-liability management with stochastic interest rates and inflation risks," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 85(3), pages 491-519, June.
    3. Aihua Zhang, 2010. "A closed-form solution for the continuous-time consumption model with endogenous labor income," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 33(2), pages 149-167, November.
    4. Yao, Haixiang & Yang, Zhou & Chen, Ping, 2013. "Markowitz’s mean–variance defined contribution pension fund management under inflation: A continuous-time model," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 851-863.
    5. Wu, Huiling & Zhang, Ling & Chen, Hua, 2015. "Nash equilibrium strategies for a defined contribution pension management," Insurance: Mathematics and Economics, Elsevier, vol. 62(C), pages 202-214.
    6. Xiaoyi Zhang & Junyi Guo, 2018. "The Role of Inflation-Indexed Bond in Optimal Management of Defined Contribution Pension Plan During the Decumulation Phase," Risks, MDPI, Open Access Journal, vol. 6(2), pages 1-1, March.
    7. Dong, Yinghui & Zheng, Harry, 2020. "Optimal investment with S-shaped utility and trading and Value at Risk constraints: An application to defined contribution pension plan," European Journal of Operational Research, Elsevier, vol. 281(2), pages 341-356.
    8. Černý, Aleš & Melicherčík, Igor, 2020. "Simple explicit formula for near-optimal stochastic lifestyling," European Journal of Operational Research, Elsevier, vol. 284(2), pages 769-778.
    9. Yueyang Zheng & Jingtao Shi, 2020. "A Stackelberg Game of Backward Stochastic Differential Equations with Applications," Dynamic Games and Applications, Springer, vol. 10(4), pages 968-992, December.
    10. 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.
    11. 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.
    12. Li, Shaoyu & Wei, Lijia & Xu, Zhiwei, 2017. "Dynamic asset allocation and consumption under inflation inequality: The impacts of inflation experiences and expectations," Economic Modelling, Elsevier, vol. 61(C), pages 113-125.
    13. Chyi Lin Lee & Ming-Long Lee, 2014. "Do European real estate stocks hedge inflation? Evidence from developed and emerging markets," International Journal of Strategic Property Management, Taylor & Francis Journals, vol. 18(2), pages 178-197, June.
    14. Chen, Zheng & Li, Zhongfei & Zeng, Yan & Sun, Jingyun, 2017. "Asset allocation under loss aversion and minimum performance constraint in a DC pension plan with inflation risk," Insurance: Mathematics and Economics, Elsevier, vol. 75(C), pages 137-150.
    15. Huang, Zongyuan & Wang, Haiyang & Wu, Zhen, 2020. "A kind of optimal investment problem under inflation and uncertain time horizon," Applied Mathematics and Computation, Elsevier, vol. 375(C).

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