Robust time-consistent strategies of DC pension plans with the return of premiums clauses under inflation

Zhehong Hao, Hao Chang and Mengke Kou

Communications in Statistics - Theory and Methods, 2025, vol. 54, issue 6, 1569-1595

Abstract: This article investigates the robust time-consistent investment strategy for a DC pension plan with model uncertainty under the mean-variance optimization objective. For the avoidance of reductions in investment returns due to inflation risk and premature death of members, an inflation-indexed bond is introduced into the financial market and a return of premium clause is incorporated into the model. By establishing extended Hamilton-Jacobi-Bellman (HJB) equations, the explicit solutions of both the robust precommitment strategy and the robust time-consistent strategy are presented by virtue of the robust optimal control theory and the stochastic dynamic programming approach. Furthermore, two degradation cases are derived in detail. Finally, a numerical example demonstrates the analysis of the obtained results.

Date: 2025
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DOI: 10.1080/03610926.2024.2347334

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