Optimal Investment Strategy for DC Pension Plan with Stochastic Income and Inflation Risk under the Ornstein–Uhlenbeck Model
Yang Wang (),
Xiao Xu () and
Jizhou Zhang ()
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Yang Wang: School of Finance and Business, Shanghai Normal University, Shanghai 200234, China
Xiao Xu: Department of Mathematics, Harbin Institute of Technology, Weihai 264209, China
Jizhou Zhang: School of Finance and Business, Shanghai Normal University, Shanghai 200234, China
Mathematics, 2021, vol. 9, issue 15, 1-15
This paper is concerned with the optimal investment strategy for a defined contribution (DC) pension plan. We assumed that the financial market consists of a risk-free asset and a risky asset, where the risky asset is subject to the Ornstein–Uhlenbeck (O-U) process, and stochastic income and inflation risk were also considered in the model. We firstly derived the Hamilton–Jacobi–Bellman (HJB) equation through the stochastic control method. Secondly, under the logarithmic utility function, the closed-form solution of optimal asset allocation was obtained by using the Legendre transform method. Finally, we give several numerical examples and a financial analysis.
Keywords: DC pension plan; O-U process; HJB equation; inflation risk; Legendre transform (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jmathe:v:9:y:2021:i:15:p:1756-:d:601360
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