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Net Contribution, Liquidity, and Optimal Pension Management
Author(s) -
Choi Changhui,
Jang BongGyu,
Kim Changki,
Roh Sangyoun
Publication year - 2016
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/jori.12072
Subject(s) - market liquidity , pension , pension fund , asset allocation , portfolio , net asset value , transaction cost , economics , net (polyhedron) , active management , pension plan , business , project portfolio management , microeconomics , finance , mathematics , geometry , management , project management
This article presents an optimal portfolio balancing strategy for a pension fund manager in the presence of fixed and proportional transaction costs with respect to stock trades and changes in net contribution. An analytic solution to the one‐period problem is presented and a heuristic method for a multiperiod problem is developed. For reasonably calibrated parameters, we find that our numerical results explain the actual asset allocation schemes of some internationally renowned pension funds. Moreover, we show that net contribution and liquidity have significant impacts on the optimal asset allocation of a pension fund.