Optimal asset allocation for aggregated defined benefit pension funds with stochastic interest rates

In this paper we study the optimal management of an aggregated pension fund of defined benefit type, in the presence of a stochastic interest rate. We suppose that the sponsor can invest in a savings account, in a risky stock and in a bond with the aim of minimizing deviations of the unfunded actuar...

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Bibliographic Details
Published in:European journal of operational research 2010-02, Vol.201 (1), p.211-221
Main Authors: Josa-Fombellida, Ricardo, Rincón-Zapatero, Juan Pablo
Format: Article
Language:English
Subjects:
Applied sciences
Asset allocation
Defined benefit plans
Exact sciences and technology
Interest rates
Operational research and scientific management
Operational research. Management science
Operations research
Optimal portfolio
Pension funds
Pension funds Stochastic control Optimal portfolio Stochastic interest rate
Portfolio theory
Stochastic control
Stochastic interest rate
Stochastic models
Studies
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Summary:In this paper we study the optimal management of an aggregated pension fund of defined benefit type, in the presence of a stochastic interest rate. We suppose that the sponsor can invest in a savings account, in a risky stock and in a bond with the aim of minimizing deviations of the unfunded actuarial liability from zero along a finite time horizon. We solve the problem by means of optimal stochastic control techniques and analyze the influence on the optimal solution of some of the parameters involved in the model.
ISSN:0377-2217
1872-6860
DOI:10.1016/j.ejor.2009.02.021