Optimal Investment Of DC Type Pension Plan Under Self-protection And Prudence Utility

In the developed economic system,DB pension plans are disappearing.As the aging population intensifies,in order to reduce the risks of enterprises,companies are gradually transferring their employees’ pensions to DC plans.In a typical DC plan,employees and employers deposit a small portion of their wages into pension accounts,and then employees can choose to invest the funds in various financial products.The article sets a minimum guarantee for the initiators of pension plans.When the benefits of pension plans are lower than the minimum guarantee,the government provides a minimum guarantee for employees participating in the plan.When the benefits are higher than the minimum guarantee,the government enjoys a portion of the benefits.In the context of increasing uncertainty in the international financial environment,in response to investors’ concerns about investment risks,Therefore,this article will study the DC type pension.Firstly,we assume that the pension manager invests the fund in three assets: savings,bonds,and stocks.Then we consider inflation and obtain the real stock price equation through discounting.When investors make investments,they will make certain efforts and costs to reduce risks.This behavior is called self-protection.This article introduces self-protection under the constraint of the minimum wealth guarantee at the DC type pension terminal,and studies the problem of maximizing the expected utility of wealth at retirement and any time before retirement,Apply the martingale method and Lagrange duality method to derive the optimal investment strategy for DC type pension at retirement time and any time before retirement.The results indicate that when self-protection is added,as the amount of funds lost and the probability of loss increases,the initiators of pension plans tend to be more cautious and invest less in stocks and bonds;Compared to not incorporating self-protection,incorporating self-protection reduces the initial financial pressure faced by investors and provides more stable savings protection during retirement.Secondly,in investment risk management,simply using mean variance to describe risk is not sufficient to meet investors’ requirements for risk aversion.Therefore,we study the optimal investment of a DC type pension plan under a utility function that satisfies the prudent characteristics in the second part of this article.The results show that using the prudent utility function can make the initial investment proportion of pension plan initiators lower,and maintain a low level before retirement,which meets the requirements of investors for prudence.Finally,the research results obtained in this paper are summarized and the paper is given.