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Continuous-time Optimal Pension Indexing in Pay-as-You-Go Systems

Author

Listed:
  • Oriol Roch

    (Universitat de Barcelona)

Abstract

Ageing population and economic crisis have placed pay-as-you-go pension systems in need of mechanisms to ensure its financial stability. In this paper, we consider optimal indexing of pensions as an instrument to cope with the financial imbalances typically found in these systems. Using dynamic programming techniques in a stochastic continuous-time framework, we compute the optimal pension index and portfolio strategy that best target indexing and liquidity objectives determined by the government. A numerical example is provided to illustrate the results.

Suggested Citation

  • Oriol Roch, 2020. "Continuous-time Optimal Pension Indexing in Pay-as-You-Go Systems," UB School of Economics Working Papers 2020/402, University of Barcelona School of Economics.
    • Handle: RePEc:ewp:wpaper:402web
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    More about this item

    Keywords

    Social Security; pension indexing; pay-as-you-go; public pensions.;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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