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Risk management for pension funds

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  • Francesco Menoncin

Abstract

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.

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  • Francesco Menoncin, "undated". "Risk management for pension funds," Working Papers ubs0403, University of Brescia, Department of Economics.
    • Handle: RePEc:ubs:wpaper:ubs0403
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    Cited by:

    1. Masashi Ieda & Takashi Yamashita & Yumiharu Nakano, 2013. "A liability tracking approach to long term management of pension funds," Papers 1303.3956, arXiv.org.
    2. Hainaut, Donatien & Devolder, Pierre, 2007. "Management of a pension fund under mortality and financial risks," Insurance: Mathematics and Economics, Elsevier, vol. 41(1), pages 134-155, July.
    3. Gao, Jianwei, 2008. "Stochastic optimal control of DC pension funds," Insurance: Mathematics and Economics, Elsevier, vol. 42(3), pages 1159-1164, June.
    4. Francesco Menoncin & Elena Vigna, 2013. "Mean-variance target-based optimisation in DC plan with stochastic interest rate," Carlo Alberto Notebooks 337, Collegio Carlo Alberto.

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