Abstract
In this work, we consider rule-based investment strategies for managing a defined contribution pension savings scheme, under the Dutch pension fund testing model. We find that dynamic, rule-based investment strategies can outperform traditional static strategies, by which we mean that the investor may achieve the target retirement income with a higher probability or limit the shortfall when the target is not met. In comparison with dynamic programming-based strategies, the rule-based strategies have more stable asset allocations throughout time and avoid excessive transactions that may be hard to explain to an investor. We also study a combined strategy of a rule-based target with dynamic programming. A key feature of our setting is that there is no risk-free asset, instead, a matching portfolio is introduced for the investor to avoid unnecessary risk.
Original language | English |
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Pages (from-to) | 189-213 |
Number of pages | 25 |
Journal | European Actuarial Journal |
Volume | 12 |
Issue number | 1 |
DOIs | |
Publication status | Published - Jun 2022 |
Bibliographical note
Publisher Copyright:© 2021, The Author(s).
Keywords
- Defined contribution
- Dynamic programming
- Life cycle investing
- Pensions
- Rule-based strategies