Optimal asset management for defined-contribution pension funds with default risk

Shibo Bian, James Cicon and Yi Zhang

Journal of Risk

Abstract: ABSTRACT We explore how a defined-contribution pension fund optimally distributes wealth between a defaultable bond, a stock and a bank account, given that a salary is a stochastic process. We assume that the investment objective of the defined-contribution pension fund is to maximize the expected constant relative risk aversion utility of terminal wealth. We thus obtain a closed-form solution to the optimal problem using a martingale approach. We develop numerical simulations, which we graph as illustrations. Finally, we discuss relevant economic insights obtained from our results.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-risk/2472517/optim ... ds-with-default-risk (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:rsk:journ4:2472517

Access Statistics for this article

More articles in Journal of Risk from Journal of Risk
Bibliographic data for series maintained by Thomas Paine ().