{"title":"Optimal Investment Strategy of Defined Contribution Pension Based on Bequest Motivation and Loss Aversion","authors":"Juan Xue, C. Wang, Lan Wang","doi":"10.1051/wujns/2022274321","DOIUrl":null,"url":null,"abstract":"Under the S-shaped utility of loss aversion, this paper considers the bequest motivation of pension plan participants, random salary income before retirement and the substitution rate between receiving pension benefits after retirement and wages before retirement, and studies the optimal investment strategy of defined contribution (DC) pension. Assuming that pension funds can invest in a financial market consisting of three assets (risk-free asset cash, rolling bonds and stocks), inflation is considered by discount. Under the S-shaped utility, the Lagrange method is used to find the terminal optimal surplus of pensions in retirement, so as to find the terminal optimal wealth, and then the martingale method is used to find the optimal wealth process and investment strategy. Finally, a sensitivity analysis is carried out on the the influence of bequest motivation and loss aversion on the optimal investment strategy of DC pension.","PeriodicalId":23976,"journal":{"name":"Wuhan University Journal of Natural Sciences","volume":null,"pages":null},"PeriodicalIF":0.0000,"publicationDate":"2022-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Wuhan University Journal of Natural Sciences","FirstCategoryId":"1093","ListUrlMain":"https://doi.org/10.1051/wujns/2022274321","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"Multidisciplinary","Score":null,"Total":0}
引用次数: 0
Abstract
Under the S-shaped utility of loss aversion, this paper considers the bequest motivation of pension plan participants, random salary income before retirement and the substitution rate between receiving pension benefits after retirement and wages before retirement, and studies the optimal investment strategy of defined contribution (DC) pension. Assuming that pension funds can invest in a financial market consisting of three assets (risk-free asset cash, rolling bonds and stocks), inflation is considered by discount. Under the S-shaped utility, the Lagrange method is used to find the terminal optimal surplus of pensions in retirement, so as to find the terminal optimal wealth, and then the martingale method is used to find the optimal wealth process and investment strategy. Finally, a sensitivity analysis is carried out on the the influence of bequest motivation and loss aversion on the optimal investment strategy of DC pension.
期刊介绍:
Wuhan University Journal of Natural Sciences aims to promote rapid communication and exchange between the World and Wuhan University, as well as other Chinese universities and academic institutions. It mainly reflects the latest advances being made in many disciplines of scientific research in Chinese universities and academic institutions. The journal also publishes papers presented at conferences in China and abroad. The multi-disciplinary nature of Wuhan University Journal of Natural Sciences is apparent in the wide range of articles from leading Chinese scholars. This journal also aims to introduce Chinese academic achievements to the world community, by demonstrating the significance of Chinese scientific investigations.