IDEAS home Printed from https://ideas.repec.org/a/wri/journl/v44y2021i1p65-89.html
   My bibliography  Save this article

Optimal Replacement and Investment Strategy in a Defined Benefit Pension Plan with Cyclically Changing Economic Environment

Author

Listed:
  • Hong Mao
  • Zhongkai Wen

Abstract

In this article, we study a defined benefit plan and use stochastic processes to model the plan. We use the Vasicek model to describe the return rates of multi-riskasset investment and the growth rate of wages, and we put time-varying correlations among them into consideration. We also consider stochastic mortality in the pension plan. We minimize the expected shortfall per unit of cumulative wealth and obtain an optimal replacement rate and investment strategy. Our numerical analyses show that a higher contribution rate corresponds to a higher optimal replacement rate. Mortality can affect greatly the design of pension plans. Therefore, mortality is an important factor in optimal designs of pension plans.

Suggested Citation

  • Hong Mao & Zhongkai Wen, 2021. "Optimal Replacement and Investment Strategy in a Defined Benefit Pension Plan with Cyclically Changing Economic Environment," Journal of Insurance Issues, Western Risk and Insurance Association, vol. 44(1), pages 65-89.
    • Handle: RePEc:wri:journl:v:44:y:2021:i:1:p:65-89
    as

    Download full text from publisher

    File URL: http://www.insuranceissues.org/PDFs/441MW.pdf
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wri:journl:v:44:y:2021:i:1:p:65-89. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: James Barrese (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.