Manage Pension Deficit with Heterogeneous Insurance

Sheng De-Lei (), Linfeng Shi, Danping Li () and Yanping Zhao
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Sheng De-Lei: Shanxi University of Finance and Economics
Linfeng Shi: Shanxi University of Finance and Economics
Danping Li: East China Normal University
Yanping Zhao: Shanxi University of Finance and Economics

Methodology and Computing in Applied Probability, 2022, vol. 24, issue 2, 1119-1141

Abstract: Abstract This paper considers a positive and increasing pension deficit of a certain pay-as-you-go (PAYG) pension system, and tries to make up for this deficit by using heterogeneous insurance. The positive pension deficit is formulated as a mathematical function in continuous time. The surplus of an appropriate heterogeneous insurance is described by diffusion approximation of a Cramér-Lundberg process. The system of extended Hamilton-Jacobi-Bellman equations under mean-variance criterion is established. The closed-form solution and optimal surplus-multiplier of heterogenous insurance are obtained. Some interpretations further explain the theoretical values of the results.

Keywords: Pension deficit; Pay-as-you-go; Surplus-multiplier; Heterogenous insurance (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11009-022-09960-3

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