Optimal Pension Fund Management with Foreign Investment in a Stochastic Environment
To ensure the success of a pension plan under a self-contained defined contribution (DC) retirement plan, the inclusion of foreign assets in a local pension portfolio could be beneficial for risk diversification and the efficient improvement of a fund’s investment performance during its accumulation...
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| Format: | Article |
| Language: | English |
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MDPI AG
2022-07-01
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| Series: | Mathematics |
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| Online Access: | https://www.mdpi.com/2227-7390/10/14/2468 |
| _version_ | 1797433348867489792 |
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| author | Mei-Ling Tang Ting-Pin Wu Ming-Chin Hung |
| author_facet | Mei-Ling Tang Ting-Pin Wu Ming-Chin Hung |
| author_sort | Mei-Ling Tang |
| collection | DOAJ |
| description | To ensure the success of a pension plan under a self-contained defined contribution (DC) retirement plan, the inclusion of foreign assets in a local pension portfolio could be beneficial for risk diversification and the efficient improvement of a fund’s investment performance during its accumulation phase. This study focuses on developing international asset allocation criteria for a DC pension plan; accordingly, we consider risk exposure relative to stochastic interest rates and ex- change rates with minimum guarantees. An arbitrage-free framework, namely, the cross-currency Heath–Jarrow–Morton interest rate model, is introduced in dynamic optimization programming for the DC pension fund. The proposed solution based on the generalized stochastic framework provides tractable and appropriate criteria for the dynamic allocation of a DC pension fund. The constituents of the optimal solution can reflect changes in investment lifecycles and shifts in risk preferences during the accumulation phase of a DC pension plan. |
| first_indexed | 2024-03-09T10:15:47Z |
| format | Article |
| id | doaj.art-cd28e6c5486a422aaffce94591adaf9a |
| institution | Directory Open Access Journal |
| issn | 2227-7390 |
| language | English |
| last_indexed | 2024-03-09T10:15:47Z |
| publishDate | 2022-07-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Mathematics |
| spelling | doaj.art-cd28e6c5486a422aaffce94591adaf9a2023-12-01T22:24:47ZengMDPI AGMathematics2227-73902022-07-011014246810.3390/math10142468Optimal Pension Fund Management with Foreign Investment in a Stochastic EnvironmentMei-Ling Tang0Ting-Pin Wu1Ming-Chin Hung2Department of Financial Engineering and Actuarial Mathematics, Soochow University, Taipei 100006, TaiwanDepartment of Finance, National Central University, Taoyuan 320317, TaiwanDepartment of Financial Engineering and Actuarial Mathematics, Soochow University, Taipei 100006, TaiwanTo ensure the success of a pension plan under a self-contained defined contribution (DC) retirement plan, the inclusion of foreign assets in a local pension portfolio could be beneficial for risk diversification and the efficient improvement of a fund’s investment performance during its accumulation phase. This study focuses on developing international asset allocation criteria for a DC pension plan; accordingly, we consider risk exposure relative to stochastic interest rates and ex- change rates with minimum guarantees. An arbitrage-free framework, namely, the cross-currency Heath–Jarrow–Morton interest rate model, is introduced in dynamic optimization programming for the DC pension fund. The proposed solution based on the generalized stochastic framework provides tractable and appropriate criteria for the dynamic allocation of a DC pension fund. The constituents of the optimal solution can reflect changes in investment lifecycles and shifts in risk preferences during the accumulation phase of a DC pension plan.https://www.mdpi.com/2227-7390/10/14/2468defined contribution pension planinterest rate riskexchange rate riskforeign investmentdynamic optimization |
| spellingShingle | Mei-Ling Tang Ting-Pin Wu Ming-Chin Hung Optimal Pension Fund Management with Foreign Investment in a Stochastic Environment Mathematics defined contribution pension plan interest rate risk exchange rate risk foreign investment dynamic optimization |
| title | Optimal Pension Fund Management with Foreign Investment in a Stochastic Environment |
| title_full | Optimal Pension Fund Management with Foreign Investment in a Stochastic Environment |
| title_fullStr | Optimal Pension Fund Management with Foreign Investment in a Stochastic Environment |
| title_full_unstemmed | Optimal Pension Fund Management with Foreign Investment in a Stochastic Environment |
| title_short | Optimal Pension Fund Management with Foreign Investment in a Stochastic Environment |
| title_sort | optimal pension fund management with foreign investment in a stochastic environment |
| topic | defined contribution pension plan interest rate risk exchange rate risk foreign investment dynamic optimization |
| url | https://www.mdpi.com/2227-7390/10/14/2468 |
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