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Mortality Risk and Real Optimal Asset Allocation for Pension Funds

  • Francesco Menoncin


    (Dipartimento di Scienze Economiche, Università di Brescia, Italy and IRES, Université catholique de Louvain, Louvain-La-Neuve, Belgique)

  • Olivier Scaillet

    (HEC Genève and FAME)

We analyze the problem of real optimal asset allocation for a pension fund maximising the expected CRRA utility of its real disposable wealth. The financial horizon of the analysis coincides with the random death time of a representative subscriber. We consider a very general setting where there exists a stochastic investment opportunity set together with stochastic contributions and pensions and we derive a quasi-explicit solution. When the market price of risk is independent of the state variables we are also able to compute a closed-form solution. Numerical simulations provide useful practical guidelines regarding the optimal investment strategy.

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Paper provided by International Center for Financial Asset Management and Engineering in its series FAME Research Paper Series with number rp101.

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Date of creation: Sep 2003
Date of revision:
Handle: RePEc:fam:rpseri:rp101
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