Optimal Pension Management under Stochastic Interest Rates, Wages, and Inflation

Paolo Battocchio and Francesco Menoncin ()
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Paolo Battocchio: UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)

No 2002021, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: We consider a stochastic model for a defined-contribution pension fund in continuous time. In particular, we focus on the portfolio problem of a fund manager who wants to maximize the expected utility of his terminal wealth in a complete financial market with stochastic interest rate. The fund manager must cope with two background risks: the salary risk and the inflation risk. We find a closed form solution for the asset allocation problem and so we are able to analyse in detail the behaviour of the optimal portfolio with respect to salary and inflation. Finally, a numerical simulation is presented.

Keywords: defined-contribution pension plan; salary risk; inflation risk; stochastic optimal control; Hamilton-Jacobi-Bellman equation (search for similar items in EconPapers)
JEL-codes: C61 G11 G23 (search for similar items in EconPapers)
Pages: 28
Date: 2002-06-01
New Economics Papers: this item is included in nep-cfn and nep-rmg
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:2002021

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