Management Strategies for a Defined Contribution Pension Fund under the Hull-White Interest Rate Model

Abstract

Abstract-This paper analyzes optimal investment strategies for a DC pension fund under the Hull-White interest rate model. Under this model, the pension fund manager can invest capital in the bank account, stock index, and real estates. The dynamics of the interest rate follows the Hull-White interest rate model, and a drifted Brownian motion drives the financial market. The pension fund manager aims to maximize the expected terminal utility of wealth in a complete market setting under constant relative risk aversion (CRRA). This paper derives the Hamilton-JacobiBellman (HJB) equation associated with the control problem using a dynamic programming technique. We obtain the explicit solution for optimal investment policies by solving the HJB equation and optimal value function. The results show that the optimal proportion invested in risky assets is higher in stock than in a real estate.

Optimal Investment Strategies for DC-Pension Fund under Combined Stochastic Volatility Models

“…The benefit payment policy has not gained popularity in a DC pension fund study. For the benefit payment policy, the retirement depends on traditional DC scheme as demonstrated in actuarial principles and concepts [19,20]. Furthermore, this study will explore the optimal investment and benefit payments policies problem for a DC pension fund scheme under the income drawdown option associated with stochastic interest rates.…”

On the Investment Strategy, Effect of Inflation and Impact of Hedging on Pension Wealth during Accumulation and Distribution Phases

“…For CARA Utility Function in the Pension Accumulation Phase under Inflationary Market; Setting σ I p = σ I s = θ I = 0 , makes the optimal strategies in equations 23 and 24 would be of the form of the [4]. What this means is that in the absence of inflation vis-a-vis risk premium due to inflation, we would have a model of the form of [18].…”