Optimal Investment Strategy for Occupational Pension Based on Exponential Utility Function

Abstract:

In a two-asset world a continuous time stochastic dynamic programming model,which involves constant contributions before retirement and constant expense after retirement,is set up to find the optimal investment strategy for defined contributions occupational pension schemes in which the employees with exponential utility function make decisions by themselves.It’s found that the optimal proportion invested in risky asset depends on the speed of pension assets and the risk-free rate.And the proportion decreases with time if the speed of pension assets is higher while the proportion increases if it is lower.In particular,the proportion will be stable if there is the same speed.Furthermore,the proportion decreases with the contribution and increases with the expense.The massive Monte Carlo simulations prove that.