Journal
METHODOLOGY AND COMPUTING IN APPLIED PROBABILITY
Volume 24, Issue 2, Pages 1253-1270Publisher
SPRINGER
DOI: 10.1007/s11009-022-09930-9
Keywords
DC pension plan; Inflation; Poisson process; Stochastic optimal control; Dynamic programming approach; HJB equation
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Funding
- High School Natural Science Foundation of Hebei Province [QN2021215]
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This study deals with the problem of optimal benefit distribution and asset allocation for a DC pension plan during its decumulation phase. Taking into account the influence of inflation, the plan aims to reduce fluctuations of benefit and terminal wealth by investing in a financial market.
This work deals with an optimal benefit distribution and asset allocation problem for a defined contribution (DC) pension plan during its decumulation phase. With the phenomenon of longevity, the time horizon of pension management during this phase might be long, thus the influence of inflation is considered in the context. The inflation index is subjected to a Poisson jump and a Brownian uncertainty. Motivated by the work of Wang et al. (2018), it is assumed that the scheme provides cost of living adjustment, which is extended to a jump diffusion process in this work. The plan aims to reduce fluctuations of benefit and terminal wealth by investing the fund in a financial market consisting of a bank account, an inflation indexed bond and a stock. The dynamics of two risky assets are also given by jump diffusion processes. The closed form decisions are derived by using the dynamic programming approach.
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