Open AccessOn the Stochastic Optimal Control Model of the Investments of Defined Contribution (DC) Pension Funds
Author(s) -
Tolulope Latunde,
Opeyemi Odunayo Esan,
Joseph Oluwaseun Richard,
Damilola Deborah Dare
Publication year - 2020
Publication title -
journal of applied science and environmental management
Language(s) - English
Resource type - Journals
eISSN - 2659-1499
pISSN - 2659-1502
DOI - 10.4314/jasem.v24i2.12
Subject(s) - pension , hamilton–jacobi–bellman equation , sensitivity (control systems) , stochastic control , economics , portfolio , stochastic modelling , investment (military) , control (management) , dimension (graph theory) , bellman equation , global assets under management , stochastic programming , pension fund , optimal control , value (mathematics) , actuarial science , mathematical optimization , mathematical economics , mathematics , institutional investor , finance , engineering , statistics , corporate governance , management , electronic engineering , politics , political science , law , pure mathematics
One of the major problems faced in the management of pension funds and plan is how to allocate and control the future flow of contribution likewise the proportion of portfolio value and investments in risky assets. In this work, optimal investment for a stochastic model of a Defined contribution (DC) is investigated such that the model design is analysed yielding an optimized expected utility of the members’ terminal wealth. An optimized solution is derived using the Hamilton Jacobi equation in solving the problem of investment strategy formulated by Constant absolute risk aversion (CARA). However, to consider the changes that occur in the dimension of optimal solutions in optimization problems, mostly, the optimal behaviour of parameters, the sensitivity analysis is considered. Thus, the analysis of the model is carried out herein by utilising the approach of the sensitivity analysis of parameters. This is carried out by using Maple software and varying the values of some model parameters such that the behaviour of each parameter relating to the pension funds invested in the risky assets is determined. The results are presented graphically and using tables thus discussed such that pension investors and stakeholders are advised.
Keywords: Stochastic; DC Pension funds; Sensitivity analysis; Hamilton-Jacobi-Bellman equation; Optimal investment