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Optimal investment for a pension fund under inflation risk

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Abstract

This paper investigates an optimal investment problem faced by a defined contribution (DC) pension fund manager under inflationary risk. It is assumed that a representative member of a DC pension plan contributes a fixed share of his salary to the pension fund during the finite time horizon [0, T]. The pension contributions are invested continuously in a risk-free bond, an index bond and a stock. The objective is to maximize the expected utility of terminal value of the pension fund. By solving this investment problem we present a way to deal with the optimization problem, in case there is a (positive) endowment (or contribution), using the martingale method.

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Authors and Affiliations

  1. Nottingham University Business School, University of Nottingham, Ningbo Campus, Admin Building, 199 Taikang East Road, Ningbo, 315100, China

    Aihua Zhang

  2. School of Mathematics and Statistics, University of Sydney, Sydney, NSW, 2006, Australia

    Christian-Oliver Ewald

Authors
  1. Aihua Zhang
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  2. Christian-Oliver Ewald
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Correspondence to Aihua Zhang.

Additional information

A. Zhang gratefully acknowledges help and support from Prof. Ralf Korn. She would also like to thank Francesco Menoncin for the discussion at the 6th International Workshop on Pension and Saving: Consequences of longevity Risks on pension systems and labor markets held at Université Paris-Dauphine where this paper has been presented. Support from the May and Stanley Smith Charitable Trust is also being acknowledged. Both authors would like to thank an anonymous referee and the editor for very helpful suggestions and advice which helped to improve this manuscript.

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Zhang, A., Ewald, CO. Optimal investment for a pension fund under inflation risk. Math Meth Oper Res 71, 353–369 (2010). https://doi.org/10.1007/s00186-009-0294-5

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