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Optimal asset management for defined-contribution pension funds with default risk

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Listed:
  • Shibo Bian
  • James Cicon
  • Yi Zhang

Abstract

ABSTRACT We explore how a defined-contribution pension fund optimally distributes wealth between a defaultable bond, a stock and a bank account, given that a salary is a stochastic process. We assume that the investment objective of the defined-contribution pension fund is to maximize the expected constant relative risk aversion utility of terminal wealth. We thus obtain a closed-form solution to the optimal problem using a martingale approach. We develop numerical simulations, which we graph as illustrations. Finally, we discuss relevant economic insights obtained from our results.

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Handle: RePEc:rsk:journ4:2472517
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