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This paper studies the optimal asset allocation problem of a defined contribution (DC) pension plan with a stochastic salary and value under a constraint within a stochastic volatility model. It is assumed that the financial market contains a risk-free asset and a risky asset whose price process satisfies the Stein–Stein stochastic volatility model. To comply with regulatory standards and offer a risk management tool, we integrate the dynamic versions of Value-at-Risk (VaR), Conditional Value-at-Risk (CVaR), and worst-case CVaR (wcCVaR) constraints into the DC pension fund management model. The salary is assumed to be stochastic and characterized by geometric Brownian motion. In the dynamic setting, a CVaR/wcCVaR constraint is equivalent to a VaR constraint under a higher confidence level. By using the Lagrange multiplier method and the dynamic programming method to maximize the constant absolute risk aversion (CARA) utility of terminal wealth, we obtain closed-form expressions of optimal investment strategies with and without a VaR constraint. Several numerical examples are provided to illustrate the impact of a dynamic VaR/CVaR/wcCVaR constraint and other parameters on the optimal strategy. [ABSTRACT FROM AUTHOR]

This paper presents a novel optimization model that explores the optimal investment strategies for DC pension plans with return of premium clauses. We have assumed that the financial market consists of a risk-free asset and a risky asset, where the price of the risky asset follows the CEV model. Under the expected utility criterion, the optimal investment strategies were derived by employing stochastic optimal control theory and the Legendre transformation method. Explicit expressions of the optimal investment strategy were provided when the utility function was specified as exponential, power, or logarithmic. Finally, numerical analysis was conducted to examine the impact of factors such as interest rate, return rate, and volatility of the risky asset on the optimal strategies. [ABSTRACT FROM AUTHOR]

FRAS Canada Corner is a quarterly update from Canada's financial reporting and assurance standards-setting Boards: the Accounting Standards Board (AcSB), the Auditing and Assurance Standards Board (AASB), and the Public Sector Accounting Board (PSAB). 20 AcSB, Consultation Paper, "Accounting Standards in Canada: Enhancing the Relevance - Draft Strategic Plan for 2022-2027" (Toronto: FRAS Canada, May 2021). The Board's response letter to Part 1 of this Consultation Paper was submitted by the July 30, 2021, deadline.[17] The Board encouraged stakeholders to share their views on Part 2 of the Consultation Paper by submitting comment letters by September 24, 2021, with a copy to the AcSB. AASB Canadian Auditing Standards (CASs) Audit Evidence When it met on July 15, 2021, the AASB provided input to the International Auditing and Assurance Standards Board (IAASB) members from Canada on issues related to the IAASB's project to revise International Standard on Auditing (ISA) 500, I Audit Evidence i . [Extracted from the article]

In this paper, we investigate an optimal investment strategy for defined-contribution (DC) pension plan under hybrid stochastic volatility (Heston--Hull--White) model, taking account of the inflation risk and the stochastic salary. The fund wealth is invested in financial market consisting of a risk-free asset, an inflation-indexed bond and a stock with hybrid Heston--Hull--White model. The goal of the pension fund manager is to maximize the expected utility of the terminal real wealth. We derive the Hamilton--Jacobi--Bellman (HJB) equation through the dynamic programming principle, under the constant relative risk aversion (CRRA) utility function, the optimal investment strategy is obtained. Finally, a numerical example is presented to characterize the impacts of financial parameters on the optimal investment strategy. [ABSTRACT FROM AUTHOR]

Defined contribution pension schemes have become quite popular throughout Europe in the last 20 years. Many countries implemented reforms trying to address the growing concerns about the pension systems organized mostly as pay-as-you-go structures in the last century. Adding fully funded components into the pension insurance, governments were trying to mitigate the problems arising from the ongoing process of population aging and the resulting unfavorable demographic trends in most of the countries in Europe. These reforms were widespread in Central and Eastern Europe in the late 1990's and early 2000's after the influential report1 published by the World Bank in 1994 whose recommendations became cornerstones of the changes introduced into the pension systems in the region. The objective of the current paper is to give some insight into the current place of the defined contribution pension schemes in the pension systems in different countries in Europe and their significance in the next decades. The issue is substantial, especially in the light of the continuous inflation and rising pressure on public finances. Long term sustainability of both pension systems and public finances requires reforms that further support accumulation of resources in the long term. The first part of the paper describes the current condition of defined contribution pension schemes in 9 CEE countries, the second part is dedicated to some common problems of the schemes. The paper concludes with some recommendations for future reforms. The methodology used in the paper includes descriptive and comparative analysis, deductive and inductive approach. The basic findings of the research show that defined contribution pension schemes in CEE countries are exposed to significant political risk but they must be further supported and reformed in the continuous process of building sustainable and adequate pension systems in the region. [ABSTRACT FROM AUTHOR]

In this paper, we investigated an optimal investment problem of a defined contribution (DC) pension plan under a joint Value-at-Risk (VaR) and an expected shortfall (ES) constraint. By using a martingale method, we transformed a dynamic optimization problem to a static pointwise optimization problem and derived the closed-form representations of the optimal wealth and portfolio processes in terms of the state price density. Numerical results showed that in comparison to only an ES constraint or a VaR constraint, the joint VaR-ES constraint can not only improve risk management for the bad economic states but also lower the volatility of the optimal terminal wealth. [ABSTRACT FROM AUTHOR]

This paper considers an optimal asset allocation problem for a defined contribution pension fund in a continuous time setting, and the manager is concerned about potential model misspecification. We suppose that the financial market consists of one risk-free asset, one market index fund whose price satisfies the constant elasticity of variance model, and a pair of risky assets with mispricing. Under the objective of maximizing the expected utility of the pension fund wealth at the retirement, the closed form expressions of the robust optimal investment strategy and the corresponding value function are obtained by using the stochastic control theory. Finally, some numerical examples are given to compare the difference between the ambiguity averse and the ambiguity neutral strategies, and to investigate the effect of relevant parameters on the strategy. We find that the optimal investment strategy is not a long-short symmetric strategy when the mispricing assets have different mispricing correct capability, and it will lead to significant utility loss for the manager if the model uncertainty risk is ignored. [ABSTRACT FROM AUTHOR]

This paper is devoted to determining an optimal investment strategy for a defined-contribution (DC) pension plan with deposit loan spread under the constant elasticity of variance (CEV) model. As far as we know, few studies in the literature have taken loans into account when using the CEV model in financial market contexts. The contribution of this paper is to study the impact of deposit loan spread on DC pension investment strategy. By considering a risk-free asset, a risky asset driven by CEV model, and a loan in the financial market, we first set up the dynamic equation and the asset market model, which are instrumental in achieving the expected utility of ultimate wealth at retirement. Second, the corresponding Hamilton–Jacobi–Bellman (HJB) equation is derived by means of the dynamic programming principle. The explicit expression for the optimal investment strategy is obtained using the Legendre transform method. Finally, different parameters are selected to simulate the explicit solution, and the financial interpretation of the optimal investment strategy is provided. We find that the deposit loan spread has a great impact on the investment strategy of DC pension plans. [ABSTRACT FROM AUTHOR]

This work deals with an optimal asset allocation problem for a defined contribution (DC) pension plan during its accumulation phase. The contribution rate is assumed to be proportional to the individual's salary. The salary follows a Heston stochastic volatility model with jumps, and there exists common shock dependence between the salary and the volatility. Since the time horizon of pension management is quite long, the influence of inflation is considered in the given context. The aim of the pension plan described in this paper is to reduce fluctuations in terminal wealth by investing in the bond and the stock. Through the dynamic programming principle, the Hamilton–Jacobi–Bellman equation is shown. The explicit expression of the investment decision is derived by solving the Hamilton–Jacobi–Bellman equation. In the last part, a numerical analysis is shown to illustrate the impacts of different parameters on the optimal investment policy. [ABSTRACT FROM AUTHOR]

In the context of pension plans, the employer and the worker have distinct interests and face different risks. The worker seeks higher retirement benefits, while the employer aims to minimize the cost of fulfilling his obligations. To address these diverse needs, the defined contribution plan managed with participating life insurance (DC-PL) and the cash balance plan managed with unit-linked insurance (CB-UL) serve as suitable choices. The multi-criteria analysis is conducted using the cumulative prospect theory model to measure the utility of the parties involved toward a mixed product combining these two pension plans. By assigning weights to risk measures and maximizing utilities, the paper employs both additive utility and Nash equilibrium approaches. The results reveal that the CB-UL plan aligns with employers' interests, offering potential financial gains, while the DC-PL plan attracts workers due to its profit-sharing aspect. Significantly, when equal importance is given to both parties, the CB-UL plan emerges as the prevailing choice. This study contributes to the understanding of pension plan design and decision-making dynamics between employers and workers, providing valuable insights for achieving a balance between retirement benefits and cost management. [ABSTRACT FROM AUTHOR]

This paper discusses investment risk for members of a Defined Contribution (DC) pension fund. This would include for example, 401K plans in the USA, most Australian pension funds, and many other DC funds globally. This paper uses examples within the Australian DC fund arena (the author's country of residence), however, the principles are consistent across all global markets. [ABSTRACT FROM AUTHOR]

In this paper, we use a continuous time stochastic model to study a collective defined contribution pension plan when the interest rate is stochastic, and where the benefit levels are adjusted depending on the performance of the plan, and with risk sharing between different generations. The nominal interest rate is characterized by the Vasicek model, and the pension fund is invested in a financial market consisting of three assets: one risk-free asset, one bond and one risky asset. The participants of the pension plan are the risk bearers, and the plan seeks optimal investment and risk-sharing arrangements for plan sponsors and participants that maximize the expected accumulated discount utility of intermediate benefit adjustments and terminal wealth. Closed-form solutions are derived via the stochastic optimal control approach under constant relative risk aversion utility function. Numerical results show the effects of financial market parameters on the optimal investment strategy and how the optimal benefit changes with respect to different risk aversions and wage increase rates. [ABSTRACT FROM AUTHOR]

We investigate the equilibrium behavioral strategy for a defined contribution (DC) pension plan during the accumulation phase in this paper. We adopt a state-dependent function to describe the risk tolerance attitude of a mean-variance (MV) investor, which is a piecewise linear function of the current wealth level with the reference point being the discounted investment target. Meanwhile, the stochastic labor income is taken into account, whose risk sources arise from both financial and non-financial markets. The extended Hamilton-Jacobi-Bellman (HJB) system of equations for our problem is presented. Explicit expressions for the suboptimal equilibrium behavioral strategy and its corresponding equilibrium value function are obtained in the suboptimal sense by the stochastic control technique. We find that the suboptimal equilibrium behavioral strategy takes a piecewise linear feedback form of the current wealth level with respect to the discounted investment target, and it also depends on the current labor income. Finally, some numerical analyses are provided to illustrate the effects of model parameters on the suboptimal equilibrium behavioral strategy and the variance-expectation curve, which shed light on our theoretical results. [ABSTRACT FROM AUTHOR]

This paper studies a robust equilibrium strategy for a mean-variance defined contribution (DC) pension plan with ambiguity aversion and return of premiums clauses in a jump-diffusion model. Ambiguity-averse members worry about model misspecification and aim to find a robust optimal strategy. In most of DC pension plans, the return of premiums clauses is been often set to protect the rights of plan members. A portion of premiums is usually refunded to members who died during the accumulation phase, while the difference between the sizes of the accumulated fund and the returned premiums is evenly divided among the surviving members. Assume that the financial market contains a risk-free asset and a risky asset, and the price process of risky asset is driven by a jump-diffusion model. We establish a mean-variance model with ambiguity aversion. By using the extended Hamilton–Jacobi–Bellman (HJB) equation, the robust time-consistent equilibrium strategy and the corresponding equilibrium value function are derived. In addition, some special cases are provided in detail. Finally, a numerical example illustrates the impact of model parameters on the robust equilibrium strategy and utility losses. [ABSTRACT FROM AUTHOR]

Purpose The purpose of this paper is to analyse how firm size impacts pension workforce coverage with a particular focus on automatic enrolment (AE) to pension plans in small organisations.Design/methodology/approach The paper examines the alignment of government AE interests with those of small employers, their employees and pension providers to better understand how firm size impacts pension workforce coverage.Findings The alignment of interests between stakeholders (government, pension providers, employers and employees) differs between large and small organisations, and empirical findings from large organisations cannot be assumed to apply in small organisations.Research limitations/implications The paper calls attention to the need for future empirical research and identifies a number of research questions for further analysis to examine how AE impacts pension participation in small organisations and advance the field.Originality/value The policy of automatically enroling employees into occupational pension plans, recently legislated for all eligible workers in the UK and under consideration in the USA and Ireland, was developed from research conducted in a small number of large organisations. Pension coverage is particularly inadequate for the large number of employees working in small organisations (1–49 employees). However, little research attention has been focussed on pensions in small organisations with pension policy makers assuming that legislated AE will work as effectively in small organisations as it did in large organisations. This paper addresses this gap in the field. [ABSTRACT FROM AUTHOR]

This paper investigates a defined contribution (DC) pension plan investment problem during the accumulation phase under the multiperiod mean-variance criterion. Different from most studies in the literature, where the investor’s risk aversion attitude is state-independent, we choose a state-dependent risk aversion parameter, which is a fractional function of the current wealth level. Moreover, we incorporate the wage income factor into our model, which leads to a more complicated problem than the portfolio selection problems that appeared in relevant papers. Due to the time inconsistency of the resulting problem, we derive the explicit expressions for the equilibrium strategy and the corresponding equilibrium value function by adopting the game theoretic framework and using the extended Bellman equation. Further, two special cases are discussed. Finally, based on real data from the American market, some prominent features of the equilibrium strategy established in our theoretical derivations are provided by comparing them with the results in the existing literature. [ABSTRACT FROM AUTHOR]

Considering the economic situation, we investigate the optimal asset allocation of defined contribution pension funds with random payouts after retirement under a modified criterion of quadratic loss. The HJB equation is derived adhering to the dynamic programming principle, and the time-consistent optimal investment strategy is designed based on the calculus theory. Finally, under two different risk attitudes, namely surplus preference and risk aversion, the impact of key parameters on the optimal investment strategy and the function of minimum loss at the initial moment is compared and analyzed, the economic significance is demonstrated, and the rationality of the model is verified. [ABSTRACT FROM AUTHOR]

In this paper, we investigate a robust optimal investment problem for a defined contribution (DC) pension plan with a return of premiums clause, taking account of the inflation risk and the salary risk. The members in the pension plan continuously contribute a fixed proportion of their stochastic salaries into the pension fund and receive the benefits at retirement time. Due to a return of premiums clause, the members who die in the accumulation phase have the right to withdraw their accumulated premiums. The pension fund manager can invest the wealth of the fund into a financial market consisting of a risk-free asset, an inflation-indexed bond and a stock. The manager is assumed to be ambiguity-averse and attempt to maximize the expected utility of the terminal wealth in each alive member's pension account under the worst-case scenario. By adopting a new state variable which represents the accumulated premiums and using dynamic programming approach, we derive the robust optimal investment strategy and the corresponding value function. Finally, the effects of the stochastic salary, the return of premiums clause and the attitude about the model uncertainty on the robust optimal investment strategy are illustrated by mathematical and numerical analysis. [ABSTRACT FROM AUTHOR]

This paper investigates an optimal investment problem for a defined contribution pension plan member who receives a stochastic salary, and considers inflation risk and stock return predictability. The member aims to maximize the expected power utility from her terminal real wealth by investing her pension account wealth in a financial market consisting of a risk-free asset, an inflation-indexed bond and a stock. The expected excess return on the stock can be predicted by both an observable predictor and an unobservable predictor, and the member has to estimate the unobservable predictor by learning the history information. By using the filtering techniques and dynamic programming approach, the closed-form optimal investment strategy and the corresponding value function are derived. Finally, with the help of numerical analysis, we explore the impact of model parameters on the optimal investment strategy, and analyze the welfare benefits from leaning and using inflation-indexed bond to hedge the stock return predictors. [ABSTRACT FROM AUTHOR]

This paper examines who contributes and who persists in contributing in a national, voluntary, defined contributory pension programme, where the government provides the incentive of matching contributions of a minimum amount (USD 16). The paper uses proprietary data from a financial services firm where 12 per cent of customers (37,000 individuals) chose to participate in this programme. The evidence shows that only about 50 per cent of contributors reach the minimum amount for the co-contribution, but that participants persist in contributing even if they failed to contribute the minimum amount in a given year. While this paper does not provide causal estimates, it does present evidence of considerable interest among the informal sector in a state-run voluntary pension programme in an emerging market where access to formal finance is otherwise poor. [ABSTRACT FROM PUBLISHER]

Abstract: This paper proposes a theoretical framework for analyzing the properties of pay‐as‐you‐go notional defined contributions (NDCs) systems within the context of aging. Different from the defined‐benefit scheme, where aging harms the financial sustainability of the social security system, the NDC determines pension benefits while taking into account life expectancy and demographic trends, turning the issue of financial sustainability into one of pension adequacy. This paper explores the balance sheet effects when life expectancy, retirement thresholds and entry age in the labor market vary by cohorts. The study suggests some solutions for practical issues concerning aging in NDC systems, such as (a) the bias related to the forecasts of survival rates, (b) the indexation of pension benefits and (c) the setup of tenure and age requirements for retirement. [ABSTRACT FROM AUTHOR]

Defined contribution superannuation plans require fund members to make several decisions requiring a high level of financial expertise and participation. Most members do not have the expertise to make such decisions; hence, the onus falls on fund providers to offer default products that make the 'best' decision for their members. In this paper, we demonstrate mathematical tools that can assist in determining optimal decisions for members with various characteristics. We provide a specific example, in a simplified setting, showing that allowing for realistic elements like social security and tax has a material impact on optimal decisions. Finally, we discuss how such models might be used in the development of default options that better cater to the needs of members. [ABSTRACT FROM AUTHOR]

Pension de‐risking strategies have been widely adopted by firms with defined‐benefit (DB) pension plans to reduce pension risk. This paper investigates the influence of board composition on pension de‐risking strategies within the UK, focusing particularly on three strategies: changes to pension asset allocations, switches from DB to defined‐contribution (DC) pension plans and pension buy‐ins and buy‐outs. Our findings suggest that firms with larger boards and more independent directors are less likely to invest their pension assets in equities. Survival analysis shows that firms with larger boards are slower to switch from DB to DC pension plans. This is consistent with stakeholder theory, in that firms with large boards or more independent directors are more likely to protect employees' benefits when de‐risking their DB pension plans. However, firms with more female directors are faster to switch fully from DB to DC pension plans and slower to engage in pension buy‐in and buy‐out transactions. This suggests that female directors encourage fully switching DB pension plans, while they are concerned with the significant costs of pension buy‐in or buy‐out. This research provides clear evidence that pension de‐risking strategies are influenced by board composition. UK pension trustees play a key role in determining switches from DB to DC pension plans, mitigating the impact of independent directors. [ABSTRACT FROM AUTHOR]

This paper obtains an optimal strategy in a finite horizon time for a portfolio of a defined contribution (DC) pension fund for an investor with the CRRA utility function. It employs the optimal stochastic control method in a financial market with two different asset markets, one risk-free and another one risky asset in which its jump follows either by a finite or infinite activity Lévy process. Sensitivity of jump parameters in an uncertainty financial market has been studied. [ABSTRACT FROM AUTHOR]

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The interest rate and the market price of risk may be stochastic in a real-world financial market. In this paper, the interest rate is assumed to be driven by a stochastic affine interest rate model and the market price of risk from the stock market is a mean-reverting process. In addition, the dynamics of the stock are simultaneously driven by random sources of interest rate and the stock market itself. In pension fund management, different fund managers may have different risk preferences. We suppose risk preference is described by the hyperbolic absolute risk aversion utility, which is a general utility function describing different risk preferences. Legendre transform-dual theory is presented to successfully obtain explicit expressions for optimal strategies. A numerical example illustrates the sensitivity of optimal strategies to market parameters. Theoretical results imply that the risks from stochastic interest rate and stochastic return may be completely hedged by adopting specific portfolios. [ABSTRACT FROM AUTHOR]

Purpose: Despite the inclusion of financial literacy in retirement studies, there are limited studies that look into retirement concerns and how financial literacy plays a role in managing retirement concerns. Understanding retirement concerns prior to retirement is important given how it affects retirement satisfaction. Therefore, this paper aims at assessing the retirement concerns in Brunei and the role of financial literacy in managing those concerns. Design/methodology/approach: 700 government employees, divided into three groups, were interviewed: Defined Contribution Plan (DCP) employees retiring in the next 10–15 years, DCP employees retiring in 20–30 years' time and Defined Benefit Plan (DBP) employees retiring in the next 10 years. Pearson's chi-square tests and logistic regressions were used to ascertain significant relationships. Findings: The results indicate the relatively younger DCP group is more likely to be financially literate compared to senior groups however, these respondents are more inclined to focus on private home ownership at this juncture. The findings also indicate the importance of knowing how much to save for retirement towards determining those with an additional retirement plan, and consequently reducing their retirement concerns. The value of financial advice is also significant in determining the amount to save for retirement and in possessing an additional retirement plan. Research limitations/implications: Results cannot be generalised to the population, as purposive sampling was utilised due to the absence of a population frame. Practical implications: The implications of the paper may provide value to policymakers to consider approaches to enhance the quality of financial advice and provide sound knowledge in computing the amount needed for retirement. Understanding the role of financial literacy vis-à-vis retirement concerns may also be useful for neighbouring countries with similar socio-cultural aspects such as Malaysia. Originality/value: Given the limited research on retirement concerns and financial literacy, this paper is one of the few to emphasise on the importance of knowing how much is needed to save for retirement, in relation to retirement concerns. This may also be useful in other countries/communities with similar retirement context such as those with relatively low retirement planning or with similar retirement schemes. Further, with the 1993 pension reform, there is no known publication on retirement concerns and expectations in Brunei. Left unchecked, it may lead to poverty in old age and/or dependency on welfare institutions and family support. [ABSTRACT FROM AUTHOR]

Records of over half a million participants in more than 600 401(k) plans indicate that participants tend to allocate their contributions evenly across the funds they use, with the tendency weakening with the number of funds used. The number of funds used, typically between three and four, is not sensitive to the number of funds offered by the plans, which ranges from 4 to 59. A participant's propensity to allocate contributions to equity funds is not very sensitive to the fraction of equity funds among offered funds. The paper also comments on limitations on inferences from experiments and aggregate-level data analysis. [ABSTRACT FROM AUTHOR]

This paper investigates retirees' optimal purchases of fixed and variable longevity income annuities using their defined contribution (DC) plan assets and given their expected social security benefits. As an alternative, we also evaluate using plan assets to boost social security benefits through delayed claiming. Using a calibrated life‐cycle model, we determine that including deferred income annuities in DC accounts is welfare‐enhancing for all sex/education groups examined. We also show that providing access to well‐designed variable deferred annuities with some equity exposure further enhances retiree well‐being, compared to having access only to fixed annuities. Nevertheless, for those facing the highest mortality rates, delaying claiming social security is mostly preferred, whereas those anticipating living longer than average will benefit more from using accumulated DC plan assets to purchase deferred annuities. [ABSTRACT FROM AUTHOR]

This work has two main objectives. First, we design a data-driven neural network approach to portfolio optimization within expected utility theory. The methodology is inspired by Li and Forsyth (Insur Math Econ 86:189–204, 2019. https://doi.org/10.1016/j.insmatheco.2019.03.001), who worked on target based defined contribution plans. Our proposal and the architecture of the model is flexible enough to address a variety of specific portfolio problems, from standard optimal utility allocation with constraints, to optimal deviations from a benchmark. Using the celebrated 1/N-Strategy (see DeMiguel et al. in Rev Financ Stud 22(5):1915–1953, 2007. https://doi.org/10.1093/rfs/hhm075) as benchmark constitutes the second objective of the paper. We consider two assets on a single path of historical return data for an investor whose utility is represented by a constant relative risk aversion function. Across several levels of risk aversion, we revisit the literature claims that it is essentially impossible to significantly outperform 1/N. Using our advanced method, we confirm that this is only true for high levels of risk aversion, but the 1/N can be consistently outperformed for low and moderate risk aversion levels. [ABSTRACT FROM AUTHOR]

This paper investigates the robust time-consistent investment strategy for the defined contribution pension plan with a minimum guarantee in a stochastic interest rate and stochastic inflation environment under the mean-variance criterion. To protect the purchasing power of pension members after retirement, the amount of the minimum guarantee is assumed to be adjusted with the stochastic interest rate and inflation level in the model. The fund manager is considered as ambiguity averse, and her objective is to prevent herself from the worst-case scenario and ensure that the fund wealth exceeds the minimum guarantee at retirement. The ambiguity-averse manager is allowed to invest in a financial market consisting of four assets: a risk-free asset, a nominal zero-coupon bond, an inflation-indexed bond and a stock. The nominal zero-coupon bond and the inflation-indexed bond are designed to hedge against interest rate risk and inflation risk. Following the robust optimal control theory, both the robust time-consistent strategy and the equilibrium value function are derived by an introduction of an auxiliary problem. Some degenerate cases are also provided. Finally, a numerical simulation demonstrates the results obtained. [ABSTRACT FROM AUTHOR]

This paper is devoted to the study of the asset allocation problem for a DC pension plan with minimum guarantee constraint in a hidden Markov regime-switching economy. Suppose that four types of assets are available in the financial market: a risk-free asset, a zero-coupon bond, an inflation-indexed bond and a stock. The expected return rate of the stock depends on unobservable economic states, and the change of states is described by a hidden Markov chain. In addition, the CIR process is used to describe the evolution of the nominal interest rate. The contribution rate is also assumed to be stochastic. The goal of investment management is to minimize the convex risk measure of the terminal wealth in excess of the minimum guarantee constraint. First, we transform the partially observable optimization problem into the one with complete information using the Wonham filtering technique and deal with the minimum guarantee constraint by constructing auxiliary processes. Furthermore, we derive the optimal investment strategy by the BSDE approach. Finally, some numerical results are presented to illustrate the impacts of some important parameters on investment behaviors. [ABSTRACT FROM AUTHOR]

In this paper, we propose a new optimal control model for uncertain systems with jump. In the model, the background-state variables are incorporated, where the background-state variables are governed by an uncertain differential equation. Meanwhile, the state variables are governed by another uncertain differential equation with jump, in which both the background-state variables and the control variables are involved. Under the optimistic value criterion, using uncertain dynamic programming method, we establish the principle and the equation of optimality. As an application, the optimal investment strategy and optimal payment rate for DC pension plans are given, where the corresponding background-state variables represent the salary process. This application in DC pension plans illustrates the effectiveness of the proposed model. [ABSTRACT FROM AUTHOR]

This paper analyzes the performance of the Italian defined contribution guaranteed pension funds during the period 2008–2012 through a panel analysis. This paper is organized around three main research questions. The first one is focused on the probability of a guarantee payment in a given year. The second one deals with the determinants of the gap between actual return and minimum guaranteed yield on a yearly basis. The third one focuses on the factors affecting the weight of administrative and management costs and their relationship with the fund dimension. [ABSTRACT FROM AUTHOR]

In this paper, we investigate an optimal investment problem under two value-at-risk (VaR) constraints faced by a defined contribution (DC) pension fund manager. We apply a concavification technique and a Lagrange dual method to solve the problem and derive the closed-form representations of the optimal wealth and portfolio processes in terms of the state price density. Theoretical and numerical results show that the two VaR constraints can significantly impact the distribution of the optimal terminal wealth. [ABSTRACT FROM AUTHOR]

This paper studies a robust optimal investment problem under the mean-variance criterion for a defined contribution (DC) pension plan with an ambiguity-averse member (AAM), who worries about model misspecification and aims to find robust optimal strategy. The member has access to a risk-free asset (i.e., cash or bank account) and a risky asset (i.e., the stock) in a financial market. In order to get closer to the actual environment, we assume that both the income level and stock price are driven by Heston's stochastic volatility model. A continuous-time mean-variance model with ambiguity aversion for a DC pension plan is established. By using the Lagrangian multiplier method and stochastic optimal control theory, the closed-form expressions for robust efficient strategy and efficient frontier are derived. In addition, some special cases are derived in detail. Finally, a numerical example is presented to illustrate the effects of model parameters on the robust efficient strategy and the efficient frontier, and some economic implications have been revealed. [ABSTRACT FROM AUTHOR]

In the past three decades, almost all OECD countries and all members of the European Union have reformed their pension systems. OECD Pensions at a Glance, OECD, Paris, OECD Pensions at a Glance | OECD iLibrary (oecd-ilibrary.org) The fraction of pension savings that can go directly into the solidarity reserve is limited to 10%, but in addition, around 30% of the pension savings of a young worker can subsequently be transferred to the solidarity reserve via a levy on future positive excess returns. [Extracted from the article]

This paper studies an optimal deterministic investment problem for a DC pension plan member with inflation risk. We describe the price processes of the inflation-indexed bond and the stock by a continuous diffusion process and a jump diffusion process with random parameters, respectively. The contribution rate linked to the income of the DC plan member is assumed to be a non-Markovian adapted process. Under the mean-variance criterion, we use Malliavin calculus to derive a characterization for the optimal deterministic investment strategy. In some special cases, we obtain the explicit expressions for the optimal deterministic strategies. [ABSTRACT FROM AUTHOR]

Using a unique matched-panel dataset that combines detailed demographic information from the Florida Department of Education's annual survey of school districts with investment information from the Florida State Board of Administration for 2002–2009, this paper looks for the presence of peer effects among Florida Defined Contribution plan participants at the school level. Overall, the regression results suggest a small, but significant peer effect on asset allocations and activity level. A 1 standard deviation change in initial peer equity yielded a 0.04 standard deviation change in equity reallocation. This is in comparison to a 1 standard deviation change in the individual's own initial equity allocation, which would yield a 0.16 standard deviation change in equity allocation. For activity level, a 5.2% change in peer activity level increased the likelihood of a participant being active by 1.8%. The findings are reinforced by similar analysis using false peer groups. These findings suggest the presence of a social multiplier for coworker investment decisions. [ABSTRACT FROM AUTHOR]

In this paper we consider the problem of choosing the optimal pension fund in the second pillar of Lithuanian pension system by providing some guidelines to individuals with defined contribution pension plans. A multistage risk-averse stochastic optimization model is proposed that can be used to plan a long-term pension accrual under two different cases: minimum and maximum accumulation plans as possible options in the system. The investment strategy of personal savings is based on the optimal solutions over possible scenario realizations generated for a particular participant. The concept of the risk-averse decision-maker is implemented by choosing the conditional value at risk as the risk measure defined by a nested formulation that guarantees the time consistency in the multistage model. The paper focuses on three important decision-making moments corresponding to the duration of periods to be modelled. The first period is a short-term accumulation, while the second period is a long-term accumulation with possibly high deviation of objective function value. The third period is designed to implement the concept of target date fund in the second pillar pension scheme as the subsequent need to protect against potential losses at risky pension funds. The experimental findings of this research provide insights for individuals as decision-makers to select pension funds, as well as for policy-makers by revealing the vulnerability of pension system. [ABSTRACT FROM AUTHOR]