Year: 2024
Type: article
Abstract: We investigated the asset allocation problem of a pension fund in which the constraints on the risky investment proportion change owing to local regulations or the fund’s policy changes. We assumed that the fund manager has a utility function with respect to the funding ratio of the pension fund. A dynamic programming approach was employed and we obtained a closed-form solution to the problem. To numerically measure the effect of such changes on asset allocation, we define the concept of policy change equivalent return (PCER) as the additional expected return for the value function of the case without such changes at the same level as the value function of the case with them. In the numerical analysis, we analyzed both the effect of regime switching on market parameters and policy change on the PCER and showed the effectiveness of introducing policy changes to asset allocation.
Authors: Jongho Park, Bong-Gyu Jang
Institution: Pohang University of Science and Technology
Language: English
Field: Decision Sciences
Domain: Social Sciences
Open Access status: diamond
Awards: G2331130832, G6949932991, G7571431513
OpenAlex ID: W4403903015