Optimal Investment Strategies for DC-Pension Fund under Combined Stochastic Volatility Models
Onwukwe Ijioma *
Department of Mathematics, Faculty of Physical Sciences, Abia State University, Uturu, Nigeria.
*Author to whom correspondence should be addressed.
Abstract
We investigate the optimal investment strategies of DC pension under stochastic volatility model using combined Heston-Hull-White (HHW) model with a constant income drawdown. The pension fund manager (PFM) aims to maximize the expected terminal utility of wealth in a complete market setting under constant relative risk aversion (CRRA). The goal of the PFM is to maintain the standard of living of the participants after retirement. We derive the HJB equation associated with the control problem and finally established the close form solution using stochastic dynamic programming principle (SDPP). The results show that the optimal investment and benefit payment strategies converge uniquely with time.
Keywords: DC pension fund, optimal control strategies, power utility, stochastic optimal control, hybrid model