Investment Strategies in the Funded Pillar of the Slovak Pension System
Investment Strategies in the Funded Pillar of the Slovak Pension System
Author(s): Igor Melicherčík, Gabor Szucs , Pavel ZetekSubject(s): Economy
Published by: Ekonomický ústav SAV a Prognostický ústav SAV
Keywords: dynamic stochastic programming; funded pillar; utility function; risk aversion; Slovak pension system; defined contribution pension scheme; pension portfolio simulations; glide path
Summary/Abstract: We present a dynamic model for optimal investment decisions in privately managed defined contribution (DC) pension plans. Stock prices are assumed to be driven by the geometric Brownian motion. Interest rates are modelled by means of the Cox-Ingersoll-Ross model (CIR). The model determines an optimal fraction of pensioner’s savings (in time) to be in-vested in an equity fund, with the rest invested in a bond fund. Next, we present sensitivity analysis with respect to various relevant parameters. We also perform stress-testing of optimal investment decisions under different equity return scenarios. The entire analysis is carried out on the actual Slovak DC scheme and all model parameters are calibrated by the latest available data.
Journal: Ekonomický časopis
- Issue Year: 63/2015
- Issue No: 02
- Page Range: 133-151
- Page Count: 19
- Language: English