The Application of Expected-Utility Theory to the Choice of Investment Channels in a Defined-Contribution Retirement Fund

Levitan, Shaun; Thomson, Robert J.

doi:10.2143/ast.39.2.2044651

Cited by 2 publications

(7 citation statements)

References 10 publications

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“…Vigna & Haberman (2001), Levitan & Thomson (2009) and Levitan (2006) use the net replacement ratio as the argument of the utility function for the asset-allocation problem facing a member of a DC retirement fund. The use of a net replacement ratio may be justified for the purposes of investment-channel choice by an individual member.…”

Section: The Argument Of the Utility Functionmentioning

confidence: 99%

“…The shapes of the utility functions of individual decision-makers may be quite variable. Levitan & Thomson (2009) show those elicited from a sample of members of a South African retirement fund. In that sample, there are examples of individuals who show aspiration levels – i.e.…”

Section: The Utility Functionmentioning

confidence: 99%

“…The fitting of utility functions as contemplated by Thomson (2003 b ) and Levitan & Thomson (2009) allows for degrees of risk tolerance that, whilst they might be acceptable for individual members, would not be appropriate for the purposes of decision-making by trustees as contemplated in this paper.…”

Section: The Utility Functionmentioning

confidence: 99%

“…This approach may be illustrated with reference to the sample of members of a retirement fund that was used in Levitan & Thomson (2009). More details of that sample, and of the research conducted on it, are contained in Levitan (2006). In those works, for each respondent m , an average relative risk aversion was found as where x is the member’s net replacement ratio at retirement and γ m ( x ) the relative risk aversion of the member as a function of the net replacement ratio x .…”

Section: The Utility Functionmentioning

confidence: 99%

“…The cumulative distribution of the average relative risk aversion of members in this sample is shown in Figure 1. As discussed in Levitan & Thomson (2009), two outliers have been ignored. The median was 2.90 and the upper extreme was 7.06.

Figure 1 Cumulative sample distribution of average relative risk aversion. …”

Section: The Utility Functionmentioning

confidence: 99%

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The quantification of type-2 prudence in asset allocation by the trustees of a retirement fund

Thomson

Reddy

2016

Ann. actuar. sci.

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In this paper, consideration is given to the normative use of expected-utility theory for the purposes of asset allocation by the trustees of retirement funds. A distinction is drawn between "type-1 prudence", which relates to deliberate conservatism on the part of actuaries in the setting of assumptions and the determination of model parameters, and "type-2 prudence", which relates to the risk aversion of the trustees. The intention of the research was to quantify type-2 prudence for the purposes of asset allocation, both for defined-contribution (DC) and defined-benefit (DB) funds. The authors propose new definitions of the objective variables used as the argument of the utility function: one for DC funds and another for DB funds. A new class of utility functions, referred to as the "weighted average relative risk aversion" class is proposed. Practicalities of implementation are discussed. Illustrative results of the application of the method are presented, and it is shown that the proposed approach resolves the paradox of counter-intuitive results found in the literature regarding the sensitivity of the optimal asset allocation to the funding level of a DB fund.

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Section: The Argument Of the Utility Functionmentioning

confidence: 99%

Section: The Utility Functionmentioning

confidence: 99%

Section: The Utility Functionmentioning

confidence: 99%

Section: The Utility Functionmentioning

confidence: 99%

Figure 1 Cumulative sample distribution of average relative risk aversion. …”

Section: The Utility Functionmentioning

confidence: 99%

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The quantification of type-2 prudence in asset allocation by the trustees of a retirement fund

Thomson

Reddy

2016

Ann. actuar. sci.

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Accounting for Climate Change Uncertainty in Long-Term Dam Risk Management

Fluixá-Sanmartín

Escuder‐Bueno

Morales-Torres³

et al. 2021

J. Water Resour. Plann. Manage.

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This paper presents a practical approach for dam risk adaptation under the influence of climate uncertainty based on robust decision-making strategies coupled with climate scenario probabilities. The proposed methodology consists of a series of steps from risk estimation for current and future situations through the definition of the most consensual sequence of risk reduction measures to be implemented. This represents a supporting tool for dam owners and safety practitioners to help make decisions for managing dams or prioritizing long-term investments using a cost-benefit approach. This methodology is applied to the case study of a Spanish dam under the effects of climate change. Several risk reduction measures are proposed and their impacts are analyzed. The application of the methodology allows for identifying the optimal sequence of implementation measures that overcomes the uncertainty from the diversity of available climate scenarios by prioritizing measures that reduce future accumulated risks at lower costs. This work proves that such a methodology helps address uncertainty that arises from the existence of multiple climate scenarios while adopting a cost-benefit approach that optimizes economic resources in dam risk management.

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The Application of Expected-Utility Theory to the Choice of Investment Channels in a Defined-Contribution Retirement Fund

Cited by 2 publications

References 10 publications

The quantification of type-2 prudence in asset allocation by the trustees of a retirement fund

The quantification of type-2 prudence in asset allocation by the trustees of a retirement fund

Accounting for Climate Change Uncertainty in Long-Term Dam Risk Management

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