Association Journal of CSIAM
Supervised by Ministry of Education of PRC
Sponsored by Xi'an Jiaotong University
ISSN 1005-3085  CN 61-1269/O1

Chinese Journal of Engineering Mathematics ›› 2024, Vol. 41 ›› Issue (2): 266-278.doi: 10.3969/j.issn.1005-3085.2024.02.005

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Optimal Investment Strategy of DC Pension Fund with Premium Refund under Inflation and Mispricing

YIN Yanhong,  XIA Dengfeng,  FEI Weiyin,  GUO Yuchao   

  1. School of Mathematics-Physics and Finance, Anhui Polytechnic University, Wuhu 241000
  • Received:2021-08-08 Accepted:2022-08-01 Online:2024-04-15 Published:2024-06-15
  • Contact: W. Fei. E-mail address: wyfei@ahpu.edu.cn}
  • Supported by:
    The National Natural Science Foundation of China (71873002; 62273003; 72271003).

Abstract:

In this article, we consider the optimal investment problem for a defined contribution (DC) pension plan under the inflation environment and the premium refund clause. We assume that the pension funds are allowed to invest in a risk-free asset and a risky asset with mispricing, for the aim of maximizing the expected utility of the terminal real wealth. Firstly, under the inflation environment, the dynamic equation of the real wealth procession is obtained by using the stochastic Calculus. Secondly, stochastic control theory is used to establish the HJB equation of the real value function of fund manager with the CRRA utility function. Moreover, the analytical solutions of the HJB equation are found. Finally, the impact of inflation volatility, mispricing, risk aversion and premium refund on the optimal strategies are given by numerical simulations. The explain of the economic implications of our theoretical results also be presented.

Key words: mispricing, inflation, pension investment, premium refund, stochastic control

CLC Number: