Optimal investment strategies and intergenerational risk sharing for target benefit pension plans under habit formation

Qian Lu, Ximin Rong and Hui Zhao

Scandinavian Actuarial Journal, 2025, vol. 2025, issue 2, 117-138

Abstract: This paper investigates a stochastic model of a continuous-time target benefit pension system with habit formation, where members' contributions are predetermined and pension payments depend on the financial condition of the system. Moreover, risk sharing among different generations is considered and we incorporate the habitual benefit payment process into the plan manager's objective. Concretely, the plan manager aims to minimize the deviation between actual payments and habitual payments, which can minimize the combined benefit-risk (i.e. deviation from the habitual target) and intergenerational transfers effectively. Furthermore, the pension fund is allowed to invest in a risk-free asset and a risky asset. By employing the martingale method, we derive the optimal investment strategy and the benefit adjustment strategy explicitly. Finally, numerical analysis is provided to illustrate the effects of model parameters on the optimal strategies.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/03461238.2024.2397582 (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:taf:sactxx:v:2025:y:2025:i:2:p:117-138

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/sact20

DOI: 10.1080/03461238.2024.2397582

Access Statistics for this article

Scandinavian Actuarial Journal is currently edited by Boualem Djehiche

More articles in Scandinavian Actuarial Journal from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().