TITLE:
Optimal Investment Strategy for Defined Contribution Pension Scheme under the Heston Volatility Model
AUTHORS:
Chidi U. Okonkwo, Bright O. Osu, Silas A. Ihedioha, Chigozie Chibuisi
KEYWORDS:
Defined Contributory Pension Scheme, Stochastic Volatility, CRRA, Prandtl Asymptotic Matching, Optimal Investment Strategy, HJB
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.8 No.4,
September
30,
2018
ABSTRACT: In this paper, the optimal investment strategy for a defined contribution (DC) pension scheme was modeled with the assumption that the fund is invested partly in riskless assets and partly in risky assets. The market has a constant interest rate, a stochastic volatility that follows the Heston model, the salary is assumed constant over the entire career of the Pension Plan Participant (PPP) and the contribution is a constant proportion of the salary. The CRRA utility function was utilized to obtain a Hamilton-Jacobi-Bellman (HJB) equation. The resulting HJB equation was solved using the Prandtl Asymptotic Matching Method following the works in the literature.