Journal of Risk
ISSN:
1465-1211 (print)
1755-2842 (online)
Editor-in-chief: Farid AitSahlia
Optimal asset management for defined-contribution pension funds with default risk
Need to know
- An optimal pension management problem with default risk is considered.
- The optimization problem is studied in a jump-diffusion framework.
- Optimal strategies for CRRA utility are derived explicitly.
Abstract
ABSTRACT
We explore how a defined-contribution pension fund optimally distributes wealth between a defaultable bond, a stock and a bank account, given that a salary is a stochastic process. We assume that the investment objective of the defined-contribution pension fund is to maximize the expected constant relative risk aversion utility of terminal wealth. We thus obtain a closed-form solution to the optimal problem using a martingale approach. We develop numerical simulations, which we graph as illustrations. Finally, we discuss relevant economic insights obtained from our results.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
