Multi-period defined contribution pension funds investment management with regime-switching and mortality risk

Haixiang Yao, Ping Chen, Xun Li

Research output: Journal article publicationJournal articleAcademic researchpeer-review

6 Citations (Scopus)

Abstract

Using mean–variance criterion, we investigate a multi-period defined contribution pension fund investment problem in a Markovian regime-switching market. Both stochastic wage income and mortality risk are incorporated in our model. In a regime-switching market, the market mode changes among a finite number of regimes, and the market state process is modeled by a Markov chain. The key parameters, such as the bank interest rate, or expected returns and covariance matrix of stocks, will change according to the market state. By virtue of Lagrange duality technique, dynamic programming approach and matrix representation method, we derive expressions of efficient investment strategy and its efficient frontier in closed-form. Also, we study some special cases of our model. Finally, a numerical example based on real data from the American market sheds light on our theoretical results.
Original languageEnglish
Pages (from-to)103-113
Number of pages11
JournalInsurance: Mathematics and Economics
Volume71
DOIs
Publication statusPublished - 1 Nov 2016

Keywords

  • Contribution pension funds
  • Dynamic programming
  • Mortality risk
  • Multi-period mean–variance
  • Regime switching

ASJC Scopus subject areas

  • Statistics and Probability
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

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