Mean-Variance Portfolio Selection Problem with Stochastic Salary for a Defined Contribution Pension Scheme: A Stochastic Linear-Quadratic-Exponential Framework

  • Charles Nkeki Department of Mathematics, University of Benin, Nigeria.
DOI: https://doi.org/10.19139/soic.v1i1.20

Abstract

This paper examines a mean-variance portfolio selection problem with stochastic salary and inflation protection strategy in the accumulation phase of a defined contribution (DC) pension plan. The utility function is assumed to be quadratic. It was assumed that the flow of contributions made by the PPM are invested into a market that is characterized by a cash account, an inflation-linked bond and a stock. In this paper, inflationlinked bond is traded and used to hedge inflation risks associated with the investment. The aim of this paper is to maximize the expected final wealth and minimize its variance. Efficient frontier for the three classes of assets (under quadratic utility function) that will enable pension plan members (PPMs) to decide their own wealth and risk in their investment profile at retirement was obtained.
Published
2013-12-01
How to Cite
Nkeki, C. (2013). Mean-Variance Portfolio Selection Problem with Stochastic Salary for a Defined Contribution Pension Scheme: A Stochastic Linear-Quadratic-Exponential Framework. Statistics, Optimization & Information Computing, 1(1), 62-81. https://doi.org/10.19139/soic.v1i1.20
Issue
Vol 1 No 1 (2013)
Section
Research Articles
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