Dynamic Programming Approach to Pension Funding: the Case of Incomplete State Information

S. Haberman and Joo-Ho Sung

ASTIN Bulletin, 2002, vol. 32, issue 1, 129-142

Abstract: Haberman and Sung (1994) have presented a dynamic model for a defined benefit occupational pension scheme which considered two types of risk: the “contribution rate” and the “solvency” risk. The current paper, extends this work by deriving optimal funding control procedures for determining the contribution rate for the case of a stochastic model with incomplete state information, making use of the separation principle. The stochastic inputs modelled are the investment returns and the benefit outgo.

Date: 2002
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