Optimal asset allocation for aggregated defined benefit pension funds with stochastic interest rates

Ricardo Josa-Fombedilla and Juan Pablo Rincón-Zapatero ()

Economics Working Papers from Universidad Carlos III, Departamento de Economía

Abstract: In this paper we study the optimal management of an aggregated pension fund of defined benefit type, in the presence of a stochastic interest rate. We suppose that the sponsor can invest in a savings account, in a risky stock and in a bond, with the aim of minimizing deviations of the unfunded actuarial liability from zero along a finite time horizon. We solve the problem by means of optimal stochastic control techniques and analyze the influence on the optimal solution of some of the parameters involved in the model.

Keywords: Pension funds; Stochastic control; Optimal portfolio; Stochastic interest rate; 91B28; 93E20; 62P05; 60H10; 60J60; E13; B81 (search for similar items in EconPapers)
JEL-codes: G23 G11 C61 (search for similar items in EconPapers)
Date: 2008-06

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Persistent link: http://EconPapers.repec.org/RePEc:cte:werepe:we078148

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