The optimal asset allocation of the main types of pension funds: a unified framework

Katarzyna Romaniuk
Additional contact information
Katarzyna Romaniuk: PRISM, University of Paris 1 Panthéon-Sorbonne, UFR 06, 1, rue Victor Cousin, Paris 75005, France, Fax: +33-1-42974253, e-mail: romaniuk@univ-paris1.fr

The Geneva Risk and Insurance Review, 2007, vol. 32, issue 2, 113-128

Abstract: The existing literature deals with the optimal investment strategy of defined benefit (DB) or defined contribution (DC) pension plans. This article's objective is to compare the optimal policies of different types of pension plans. This is done by first defining an original framework, which is based on the distinction between the nature of the guarantee—which can be internal or external—offered by or to a pension fund. This framework allows to establish links between optimization programs of DC, DB and targeted money purchase schemes. The case of an internal guarantee appears as a standard portfolio insurer's problem. The second kind of guarantee, not analyzed in the literature yet with regard to the resulting optimal policy, is characterized by the existence of an option in the final wealth definition. Four funds are present in the internal guarantee optimal allocation: the speculative component, the preference independent guarantee- and contribution-hedge terms and the preference dependent state variable-hedge fund. The external guarantee program, solved with an original method using the principles of standard options theory, yields an optimal policy incorporating the delta of the option embodied in the final wealth definition. The conclusion is that the resulting optimal portfolio policy becomes riskier. The Geneva Risk and Insurance Review (2007) 32, 113–128. doi:10.1007/s10713-007-0005-1

Date: 2007
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.palgrave-journals.com/grir/journal/v32/n2/pdf/grir2007195a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/grir/journal/v32/n2/full/grir2007195a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

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:pal:genrir:v:32:y:2007:i:2:p:113-128

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10713

Access Statistics for this article

The Geneva Risk and Insurance Review is currently edited by Michael Hoy and Nicolas Treich

More articles in The Geneva Risk and Insurance Review from Palgrave Macmillan, International Association for the Study of Insurance Economics (The Geneva Association) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().