Nash equilibrium strategies for a defined contribution pension management

Huiling Wu, Ling Zhang and Hua Chen

Insurance: Mathematics and Economics, 2015, vol. 62, issue C, 202-214

Abstract: This paper studies the time-consistent investment strategy for a defined contribution (DC) pension plan under the mean–variance criterion. Since the time horizon of a pension fund management problem is relatively long, two background risks are taken into account: the inflation risk and the salary risk. Meanwhile, there are a risk-free asset, a stock and an inflation-indexed bond available in the financial market. The extended Hamilton–Jacobi–Bellman (HJB for short) equation of the equilibrium value function and the verification theorem corresponding to our problem are presented. The closed-form time-consistent investment strategy and the equilibrium efficient frontier are obtained by stochastic control technique. The effects of the inflation and stochastic income on the equilibrium strategy and the equilibrium efficient frontier are illustrated by mathematical and numerical analysis. Finally, we compare in detail the time-consistent results in our paper with the pre-commitment one and find the distinct properties of these two results.

Keywords: Defined contribution; Stochastic inflation; Stochastic salary; Nash equilibrium strategy; Mean–variance (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:62:y:2015:i:c:p:202-214

DOI: 10.1016/j.insmatheco.2015.03.014

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