Operations Research Transactions >
2023 , Vol. 27 >Issue 1: 70 - 86
DOI: https://doi.org/10.15960/j.cnki.issn.1007-6093.2023.01.005
Optimal investment of DC pension plan under a weighted utility and VaR-PI constraint
Received date: 2021-01-11
Online published: 2023-03-16
From the dual perspective of the DC pension plan members and the manager, we investigate the asset allocation of a DC pension plan under a VaR-PI constraint by maximizing a weighted utility of the two parties. Assuming that the DC pension plan members and the manager are loss averse and we use two S-shaped utility functions to demonstrate the loss aversion behavior. The VaR constraint and a weighed utility lead to a complex, nonconcave utility maximization problem. We apply the Lagrange duality theory and the concavification technique to derive the optimal wealth and the optimal portfolio processes. Numerical results show that the manager shall take a much riskier portfolio strategy when the benefits of the DC pension plan members are paid much more attention. The VaR constraint can improve the risk management of the DC pension plan.
Key words： VaR constraint; DC pension plan; loss aversion; weighted utility
Yinghui DONG, Siyuan WEI, Zihan YIN . Optimal investment of DC pension plan under a weighted utility and VaR-PI constraint[J]. Operations Research Transactions, 2023 , 27(1) : 70 -86 . DOI: 10.15960/j.cnki.issn.1007-6093.2023.01.005
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