Portfolio optimization in a defined benefit pension plan where the risky assets are processes with constant elasticity of variance

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dc.contributor.author Josa Fombellida, Ricardo
dc.contributor.author López Casado, Paula
dc.contributor.author Rincón-Zapatero, Juan Pablo
dc.date.accessioned 2022-04-28T13:20:23Z
dc.date.available 2022-04-28T13:20:23Z
dc.date.issued 2018-09-01
dc.identifier.bibliographicCitation Josa-Fombellida, R., López-Casado, P., & Rincón-Zapatero, J. P. (2018). Portfolio optimization in a defined benefit pension plan where the risky assets are processes with constant elasticity of variance. Insurance: Mathematics and Economics, 82, pp. 73-86.
dc.identifier.issn 0167-6687
dc.identifier.uri http://hdl.handle.net/10016/34653
dc.description.abstract The paper studies the optimal asset allocation problem of a defined benefit pension plan that operates in a financial market composed of risky assets whose prices are constant elasticity variance processes. The benefits paid to the participants are deterministic. The contributions to the fund are designed by a spread amortization method, which takes into account the size of the unfunded actuarial liability, defined as the difference between the actuarial liability and the fund assets. We address the case where the fund manager wishes to minimize the solvency risk at the final date of the plan when the fund is underfunded, as well as the case where the fund manager wishes to maximize an increasing, constant elasticity utility function of the fund surplus, when the fund is overfunded. The optimal portfolio and contributions are obtained in both scenarios, with the help of the Hamilton-Jacobi-Bellman equation. A numerical illustration shows the evolution of the plan for several values of the elasticity parameter of the CEV price processes and the risk aversion of the manager, yielding some tips on the main properties of the optimal portfolio
dc.description.sponsorship The authors are grateful to the managing editor and two anonymous referees for their comments and suggestions. Support from the Ministerio de Economía, Industria y Competitividad (Spain), grants ECO2011-24200, ECO2014-56384-P, MDM 2014-0431 and ECO2017-86261-P, the Comunidad de Madrid, MadEco-CM S2015/HUM-3444, and the Comunidad de Castilla y León , VA148G18, is gratefully acknowledged.
dc.language.iso eng
dc.publisher Elsevier
dc.rights © 2018 Elsevier B.V. All rights reserved.
dc.rights Atribución-NoComercial-SinDerivadas 3.0 España
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.other Pension funding
dc.subject.other Dynamic programming
dc.subject.other CEV process
dc.subject.other Risk management
dc.subject.other Optimal portfolio
dc.title Portfolio optimization in a defined benefit pension plan where the risky assets are processes with constant elasticity of variance
dc.type article
dc.subject.jel G22
dc.subject.jel G11
dc.subject.jel C61
dc.subject.eciencia Economía
dc.identifier.doi https://doi.org/10.1016/j.insmatheco.2018.06.011
dc.rights.accessRights openAccess
dc.relation.projectID Gobierno de España. ECO2011-24200
dc.relation.projectID Gobierno de España. ECO2014-56384-P
dc.relation.projectID Gobierno de España. ECO2017-86261-P
dc.type.version acceptedVersion
dc.identifier.publicationfirstpage 73
dc.identifier.publicationlastpage 86
dc.identifier.publicationtitle INSURANCE MATHEMATICS & ECONOMICS
dc.identifier.publicationvolume 82
dc.identifier.uxxi AR/0000022255
dc.contributor.funder Ministerio de Economía, Industria y Competitividad (España)
dc.contributor.funder Comunidad de Madrid
dc.contributor.funder Comunidad de Castilla y León
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