Optimal Investment for Defined-Contribution Pension Plans with the Return of Premium Clause under Partial Information

Zilan Liu, Huanying Zhang, Yijun Wang () and Ya Huang
Additional contact information
Zilan Liu: School of Business, Hunan Normal University, Changsha 410081, China
Huanying Zhang: Key Laboratory of Computing and Stochastic Mathematics (Ministry of Education), School of Mathematics and Statistics, Hunan Normal University, Changsha 410081, China
Yijun Wang: School of Finance, Henan University of Economics and Law, Zhengzhou 450016, China
Ya Huang: School of Business, Hunan Normal University, Changsha 410081, China

Mathematics, 2024, vol. 12, issue 13, 1-22

Abstract: The optimal investment problem for defined contribution (DC) pension plans with partial information is the subject of this paper. The purpose of the return of premium clauses is to safeguard the rights of DC pension plan participants who pass away during accumulation. We assume that the market price of risk consists of observable and unobservable factors that follow the Ornstein-Uhlenbeck processes, and the pension fund managers estimate the unobservable component from known information through Bayesian learning. Considering maximizing the expected utility of fund wealth at the terminal time, optimal investment strategies and the corresponding value function are determined using the dynamical programming principle approach and the filtering technique. Additionally, fund managers forsake learning, which results in the presentation of suboptimal strategies and utility losses for comparative analysis. Lastly, numerical analyses are included to demonstrate the impact of model parameters on the optimal strategy.

Keywords: DC pension plan; return of premium clause; Bayesian learning; dynamical programming (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2227-7390/12/13/2130/pdf (application/pdf)
https://www.mdpi.com/2227-7390/12/13/2130/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jmathe:v:12:y:2024:i:13:p:2130-:d:1430410

Access Statistics for this article

Mathematics is currently edited by Ms. Emma He

More articles in Mathematics from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().