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On loss-avoiding lump-sum pension optimization with contingent targets

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  • Azzato, Jeffrey
  • Krawczyk, Jacek B
  • Sissons, Christopher

Abstract

Consider a lump-sum pension fund problem, in which an agent deposits an amount with a fund manager up front and is later repaid a lump sum x(T) after time T. The fund manager may be both cautious in seeking a payoff x(T) meeting a certain target, but relaxed toward the possibility of exceeding this target. We use a computational method in stochastic optimal control (“SOCSol†) to find approximately-optimal decision rules for such “cautious-relaxed†fund managers. In particular, we examine fund optimisation problems in which the target is contingent upon market conditions such as inflation.

Suggested Citation

  • Azzato, Jeffrey & Krawczyk, Jacek B & Sissons, Christopher, 2011. "On loss-avoiding lump-sum pension optimization with contingent targets," Working Paper Series 1532, Victoria University of Wellington, School of Economics and Finance.
  • Handle: RePEc:vuw:vuwecf:1532
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    File URL: http://researcharchive.vuw.ac.nz/handle/10063/1532
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    References listed on IDEAS

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    Cited by:

    1. Foster, Jarred, 2011. "Target variation in a loss avoiding pension fund problem," MPRA Paper 36177, University Library of Munich, Germany.
    2. Foster, Jarred & Krawczyk, Jacek B, 2013. "Sensitivity of cautious-relaxed investment policies to target variation," Working Paper Series 2972, Victoria University of Wellington, School of Economics and Finance.
    3. Jacek B Krawczyk, 2015. "Delivering Left-Skewed Portfolio Payoff Distributions in the Presence of Transaction Costs," Risks, MDPI, Open Access Journal, vol. 3(3), pages 1-20, August.

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    Keywords

    lump-sum; pension; optimal; inflation;

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