Communication and personal selection of pension saver’s financial risk

Russell Gerrard, Munir Hiabu, Ioannis Kyriakou and Jens Perch Nielsen

European Journal of Operational Research, 2019, vol. 274, issue 3, 1102-1111

Abstract: The paper shows how to reform the platform of pension products so that pension savers, professional financial advisors, actuaries and investment experts intuitively understand the underlying financial risk of the optimal investment profile. It is also pointed out that an excellent optimal investment strategy can destroy the future expected utility of a pension saver if the financial communication is wrong. It is shown that a simple system with an upper and a lower bound, originally inspired by Merton (2014), which can be executed easily using fintech, can replace complicated power utility optimization for the pension saver so that everyone can exactly understand the amount of financial risk taken. The paper focuses on investing money as a lump sum because being able to communicate the associated financial risk can serve as the first step towards communicating more complex pension saving structures.

Keywords: Investment analysis; Finance; Utility theory; Risk management; OR in banking (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:274:y:2019:i:3:p:1102-1111

DOI: 10.1016/j.ejor.2018.10.038

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