Sensitivity Analysis for a Dynamic Stochastic Accumulation Model for Optimal Pension Savings Management
Sensitivity Analysis for a Dynamic Stochastic Accumulation Model for Optimal Pension Savings Management
Author(s): Igor Melicherčík, Tibor Jakubík, Daniel ŠevčovičSubject(s): Economy
Published by: Ekonomický ústav SAV a Prognostický ústav SAV
Keywords: dynamic stochastic programming; funded pillar; utility function; Bellman equation; Slovak pension system; correlation; risk aversion; pension portfolio simulations
Summary/Abstract: Since January 2005, pensions in Slovakia are operated by a three-pillar system. This paper concentrates on the mandatory, fully funded second pillar. In our analysis we follow the dynamic stochastic accumulation model proposed by the authors in (Kilianová et al., 2006). Recently pension asset managers tend to be very cautious and they hold low stock to bond proportions in the pension funds. We discuss the sensitivity of the level of savings with respect to the proportion of stocks in the portfolios. Furthermore, we perform the sensitivity analysis with respect to correlation between stock and bond returns and risk aversion. Finally, we prove linearity of the level of savings with respect to the contribution rate.
Journal: Ekonomický časopis
- Issue Year: 57/2009
- Issue No: 08
- Page Range: 756-771
- Page Count: 16
- Language: English