Stochastic optimal control of DC pension funds

Jianwei Gao

Insurance: Mathematics and Economics, 2008, vol. 42, issue 3, 1159-1164

Abstract: In this paper, we study the portfolio problem of a pension fund manager who wants to maximize the expected utility of the terminal wealth in a complete financial market with the stochastic interest rate. Using the method of stochastic optimal control, we derive a non-linear second-order partial differential equation for the value function. As it is difficult to find a closed form solution, we transform the primary problem into a dual one by applying a Legendre transform and dual theory, and try to find an explicit solution for the optimal investment strategy under the logarithm utility function. Finally, a numerical simulation is presented to characterize the dynamic behavior of the optimal portfolio strategy.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:42:y:2008:i:3:p:1159-1164

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