Management strategies for a defined contribution pension fund under the hybrid stochastic volatility model

Autor: Emmanuel Hagenimana, Lixin Song, Patrick Kandege Mwanakatwe, Xiaoguang Wang
Rok vydání: 2019
Předmět:
Zdroj: Computational and Applied Mathematics. 38
ISSN: 1807-0302
2238-3603
DOI: 10.1007/s40314-019-0790-z
Popis: In this paper, we introduce the Heston–Hull–White (the hybrid) model in the pension fund management. The optimal investment and benefit payments policies for the DC pension fund with an income drawdown option are presented explicitly. In this study, the pension fund manager is allowed to invest the fund wealth in riskless and risky assets. The risk asset price dynamics evolve according to the Hybrid Stochastic Volatility (Heston–Hull–White) model. The goal of the pension fund manager is to maintain the standard of lives for the pension fund members after retirement. We derived the HJB equation and established the closed-form solution for the optimal control policies using stochastic dynamic programming principle. To illustrate the economic implications of the model, we provide a numerical example and simulations. The results reveal that the optimal investment and benefit payments strategies convergence successful with time t. The risk asset price volatility and interest rate mean reversion are inversely proportional to investment policy. The interest rate volatility and risk preference are both directly proportional to investment and benefit payments. The pension fund managers are advised to control the investment and the benefit payments policies to achieve the goals of the pension fund members.
Databáze: OpenAIRE
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